Reluctant banks pushed to buy stocks for market support

After a series of meeting, Finance Minister AHM Mustafa Kamal on Monday convinced banks to start buying shares from the next trading session under the special scheme offered by the central bank recently.

Still banks are confused about investing in stock amid concerns like lack of confidence in capital market, interest rate capping, share selling spree of foreigners and uncertainty over the coronavirus outbreak.

Banks are confused that how long index will continue to fall while corona outbreak has been added as a new concern, said Mashrur Arefin, the managing director of City Bank.

However, banks in Monday's meeting agreed to accelerate their stock investment, he said.

Despite intense effort of the Bangladesh Bank, banks showed little interest in stock market investment as only Tk130 crore were pumped into stocks so far under a special scheme that allowed each bank to build a fund up to Tk200 crore. Only City Bank alone invested Tk50 crore.

Out of 59 banks, only nine built funds of around Tk1,600 crore as of Monday, while the incentive package was supposed to make Tk12,000 crore available for investing in the capital market.

The nine banks are Sonali, Janata, Agrani, Rupali, UCBL, Social Islami Bank, Islami, Shahjalal Islami, and City Bank, according to Bangladesh Bank data.

Though the central bank offered low-cost liquidity support to banks aiming to boost stock market, no positive reflection was in sight as stocks continued to slide, with the Dhaka Stock Exchange (DSE) broad index dipping below 4000 points on Sunday.

Amid this situation, Finance Minister AHM Mustafa Kamal held a meeting with all authorities and stakeholders concerned on Monday at the National Economic Council auditorium of the planning ministry.

Managing directors and chairmen of four state-owned banks, managing directors of four private commercial banks, high-ups of the Bangladesh Bank and the Bangladesh Securities and Exchange Commission (BSEC) attended the meeting.

Soon after the meeting, Md Nazrul Islam Mazumder, chairman of EXIM Bank, told journalists that most banks were slow in investment due to worsening situation of the stock market.

However, now it is the time to invest to help the market and banks will invest gradually, he added.

Banks will start to put buying orders from the next trading session, he assured.

He said the Bangladesh Bank and the BSEC will monitor the fund building process of the banks and the finance ministry will sit with the banks every week.

"We think, the stock market will be stable within one or two months," he said.

Earlier on March 10, after seeing lukewarm response from the banks, the Bangladesh Bank asked top executives of all commercial banks over telephone to intensify their efforts to build the fund.

The central bank's telephonic directives came just a day after Dhaka stocks plunged 279 points or 6.5 percent on March 9 – the biggest ever single-day fall since 2013.

Only in March, DSEX lost 15 percent reaching to 3,772 points on Monday.

The DSE board also had a meeting with representatives of the listed banks on March 10 in order to know about the banks' reluctance to avail of the facility by creating a fund with their own money or taking repo at 5 percent from the central bank.

DSE representatives requested the banks to take the chance and help general shareholders (investors) who own majority stakes.

The Bangladesh Bank, on February 10, offered low-cost liquidity support for banks to increase their investment in stocks.

Under the new incentive package, banks can build up the fund from their own source or take the money from the central bank through repo at 5 percent rate.

They can lend this money to their subsidiaries such as merchant banks and brokerage houses at 7 percent interest rate. The tenure of this kind of loans will end on February 9, 2025.

Such an investment will not come under the capital market exposure.

The banks were also given exemption from maintaining provisioning against the investment, according to the central bank circular.

Despite giving such mega offer and having excess liquidity over Tk100,000 crore, the banks seemed reluctant to build fund for stock investment.