At least 12 banks have violated Bangladesh Bank’s rules in terms of investing in the country’s capital market from their respective special funds formed for stock market investments.
A central bank primary scrutiny on the banks’ investments in the stocks also revealed that the banks had invested at least Tk 80 crore in several scrips, including BEXIMCO and some newly listed companies, in violation of BB rules, sources said.
Based on the findings, the BB has already started inspection of six banks to get further details of the banks’ investments in the capital market and their transaction pattern.
An investigation into the rest six banks’ stocks investments would be decided later based on the inspection findings.
So far, 14 banks have taken the scope for forming special funds worth around Tk 1,700 crore to invest in stocks. Of the banks, two have taken fund from the central bank and the rest 12 formed the funds from their own sources.
In February 2020, the BB, to stabilise the ailing capital market, allowed each bank to form a Tk 200-crore special fund by taking low-interest loans from the central bank to invest in the stock market.
BB officials said that the BB had already compelled the banks to sell shares of those scrips in which investments were made in breach of BB rules.
Using the special fund, investments in newly listed companies and in the companies which gave less than 10 per cent dividend in the preceding three years are prohibited.
The banks, however, disregarded the rules that prompted the central bank to launch the inspection to scrutinise if the banks had any involvement in the recent abnormal surge in share prices.
BB-designated officials have already started their task on Wednesday.
Apart from the six banks, the central bank also launched an inspection for three non-bank financial institutions on the same ground.
The next course of action against the banks which have breached the BB’s rules would be made based on the inspection reports, the BB officials said.
The key index of the country’s premier bourse Dhaka Stock Exchange, DSEX, reached a record high of 6,885 points, prompting the central bank to take a very cautious stance on monitoring banks’ investments in stocks since banks are holding a huge volume of excess liquidity.
Prices of shares of a large number of companies have increased sharply in the recent rally and some of them have increased abnormally.
As part of its latest stance, the BB on August 12 asked all banks to report to the regulator on a daily basis about their fund flow, including their investments in the stock market, on a daily basis to closely monitor banks investments in the stock market.
The banks must report to the central bank by 5:00pm every working day about their fund positions in the money market.
In the report, the banks must mention their total fresh investment, total sales value of securities and net exposure, including information regarding fund placed to the other banks, non-bank financial institutions, merchant banks, brokerage houses, insurance companies and corporates, other than call loans.
The BB has recently also found that some of the borrowers have diverted stimulus funds to unproductive sectors like the stock market instead of using them in the productive sectors.
Though the country’s economy has been going through the Covid crisis, the country’s stock market and the real-estate sector have witnessed a bubble in recent times.
In August, the BB initiated a move to mop up excess liquidity from the money market by issuing Bangladesh Bank Bills and the BB has mopped up Tk 12,675 crore from the money market so far.
At the end of FY21, the value of excess liquidity in the country’s banking sector stood at Tk 2.31 lakh crore, prompting the central bank to squeeze liquidity supply.
Midway News Team
We publish the latest stock market news to help you decide on your investment decisions.