The Bangladesh Bank has fined Southeast Bank Tk10 lakh for overinvestment in stocks of a single company violating the banking company law.
The bank invested in the stocks of National Life Insurance Company, exceeding the authorised ceiling of 25% of its capital.
It bought around 24 lakh shares of National Life Insurance. The price of each share of the company ranged between Tk210 and Tk280 in the past one year.
In September this year, the Bangladesh Bank asked the bank to bring down its investment within the authorised limit but it did not follow the central bank's instructions. Instead, the bank authorities tactfully transferred the share to another account they hold.
In this perspective, the Bangladesh Bank has imposed the financial penalty, according to a central bank's letter served to Southeast Bank last month.
At the same time, the bank will be fined Tk50,000 every day until it adjusts the over investment.
When contacted, M Kamal Hossain, managing director of Southeast Bank, said the investment went above the authorised ceiling because of a rise in the price of the share.
He also said they would bring down the investment within the limit.
The bank was penalised after the central bank had conducted an investigation into banks' investment in the stock market and detected several banks' involvement in breaching rules.
Previously, the central bank fined four banks – the NRB Bank, NRB Commercial Bank, Exim Bank, and Premier Bank – for violating rules concerning stock investment.
Another four banks were warned of having their access to the special liquidity support package suspended if any further violation was found in future.
The banks are Eastern Bank, Union Bank, Global Islami Bank, and Agrani Bank.
The price indices of the Dhaka Stock Exchange (DSE) slowed down after the Bangladesh Bank had started to take stern action against overplay of banks in the stock market.
The average daily turnover on the country's premier bourse came down to Tk1,000 crore in November from above Tk2,000 crore in October. The DSEX index came down below 7,000 in November.
The stock market remained vibrant over the last one year when the overall economic activities were stagnant. Share prices of 140 listed companies, mostly small-cap and junk ones, increased by 100%-1,200% in the last one year, putting retail investors at risk.
Share manipulation of the insurance sector was widely discussed among stock investors.
Shares of 48 out of 53 listed insurance companies gained prices between above 100% and 750% in the last one year, according to the DSE.
Prices of junk and small-cap shares increased unusually without any fundamental reason or improvement in financial health or dividend declaration, which reflects that there was manipulation.
The central bank's findings indicate that banks were behind the unusual hike of junk share price in the last one year.