Banks get until Dec 2023 to adjust excess stock investment
The Bangladesh Bank has given banks until 31 December 2023 to adjust their excess investment from the capital market exposure limit.
In a circular on Monday, the central bank asked the lenders that have excess investment in stocks until 31 August to bring down their exposure to the prescribed level.
Earlier, on 12 October, the Financial Institutions Division sent a letter to the central bank with its consent to this end.
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Seeking anonymity, a central bank official said, on 4 August this year, the Bangladesh Bank issued instructions to calculate banks' stock investments based on the cost price instead of the market price of their shares.
"In this, the investments of several banks have been found overexposed. And if this investment is brought down to the prescribed limit, the stock market index will fall. Banks also have to count losses. So, the banks requested time to adjust the limit," he added.
In 2013, the Bangladesh Bank set banks' investment limits in the stock market, considering risk management. According to that directive, no bank can invest more than 25% of its equity in the stock market unless it has a subsidiary company. And banks that have subsidiary companies can invest up to 50% of their equity.
As per rules, a bank can hold onto a single company's shares valued at up to 10% of the bank's paid-up capital and up to 5% of its total capital.
The chief financial officer of a private bank said that many banks had bought shares at a high price. So, they are in trouble due to the calculation of the investment limit at cost price. It has become difficult to adjust accounts in a short period of time, especially for banks that have large investments in subsidiary companies.
