Central bank agrees to exclude banks’ bond investment from their capital market exposure

The Bangladesh Bank, the money market regulator, has agreed to exclude banks' bond investments from their capital market exposure calculation.

The decision was made at a meeting with the stock market regulator the Bangladesh Securities and Exchange Commission (BSEC) on Tuesday.

Central bank's Deputy Governor AKM Sajedur Rahman Khan and other officials were present at the meeting.

At a press conference after the meeting, BSEC Commissioner Dr Shaikh Shamsuddin Ahmed said the central bank had responded positively to the BSEC proposal for basing banks' capital market exposure calculation on the cost price of securities – instead of the current mark to market method.

In stock markets in other countries of the world, even in India and Vietnam, a bank's investments are valued at purchase price, but only in Bangladesh it is done so at market price, he said.

"The Bangladesh Bank would also allow banks to comply with the corporate governance code that would enable banks to get 20% independent directors and form nomination and remuneration committees," Dr Shamsuddin said.

He said they explained that adherence to a corporate governance code would help ensure good governance of the bank and the Bangladesh Bank officials agreed.

The central bank had said no bank would be able to pay dividends if it had accumulated losses. According to the BSEC, however, dividends can be paid if the accumulated losses are in accordance with international accounting standards. This standard is followed all over the world, Shamshuddin said.

He said the Bangladesh Bank assured the stock market regulator that it would take appropriate action if such a matter was brought to the central bank's attention. 

The BSEC commissioner said the Bangladesh Bank had objected to the use of certain terms in the Capital Market Stabilisation Fund Act. "We will issue another circular clarifying the law. This will cut any ambiguity."

Shamshuddin expressed hope that the central bank would come up with the necessary amendments in the coming days.

A central bank official, on the condition of anonymity, said, "Unclaimed dividends of shareholders can be sent to the Capital Market Stabilisation Fund. The central bank will look to quickly solve any problems in this regard. Banks will be able to send unclaimed dividends by December.

"Necessary steps will also be taken to comply with international accounting standards in the declaration of dividends. But the law has to change for other things. Moreover, these issues need further discussion."