Bank investment accounts for less than 5% of DSE market capitalisation

The much-discussed exposure of the banking industry in the capital market stands at around Tk23,000 crore, which is not even 5% of the Dhaka Stock Exchange's (DSE) total market capitalisation of over Tk5.31 lakh crore, according to a compilation by the securities regulator. 

Of the total exposure, the lenders' own money investment amounts to less than Tk15,000 crore while the remaining investment comes from their subsidiary firms formed to operate in the capital market.

The Bangladesh Securities and Exchange Commission (BSEC), through the DSE, wrote to all the 61 scheduled banks in the country requesting their capital market investment data earlier this year. Forty-seven of the banks responded to the call.

According to regulatory sources, as of 10 March, 42 banks' contribution to the capital market accounts for almost all of the entire banking industry exposure – over Tk22,300 crore. On the other hand, five banks – a new private commercial bank and four foreign banks – reported having no investment in the capital market.

Banks on a solo basis, have less than Tk15,000 crore exposure in the capital market, which includes their own portfolio investment of over Tk7,000 crore, nearly Tk5,000 crore loans to their capital market subsidiaries, less than Tk2,000 crore exposure through investments in mutual funds and loans to other market intermediaries which are not their subsidiaries.

Banks' own portfolio investment is less than half of what the capital market got from the yet-to-flourish mutual fund industry which is managing over Tk16,000 crore.

The banking industry's market exposure has long been widely sought after information to the stock market investors as both their buying-selling tendencies are believed to influence the market trends.

The Bangladesh Bank allows banks to raise their solo capital market exposure up to 25% of their core capital or equity, which is 50% on a consolidated basis.

The reporting banks' solo exposure including their own portfolio investment and loans to brokerage, merchant banking and asset management subsidiaries, was 17.79% of their total equity on 10 March this year.

The industry average is several hundred basis points lower as the banks outside the purview of the BSEC compilation invested an insignificant amount, according to central bank sources.

The BSEC report also reveals that the banks made over Tk888 crore profit from their solo stock market exposure in 2021, which yields over 6% annual return.

Of the 42 banks with investment in the capital market, only two incurred losses in their portfolio and IFIC Bank made the highest investment return in 2021.

The reporting banks' provision against unrealised portfolio losses in the stock market was Tk431 crore.

Some banks including Dutch-Bangla, Meghna, and Shimanto Bank have an exposure level of below 10% level and they have significant room to raise investments in listed securities, the BSEC report said.