Rejaul Karim Byron and Sohel Parvez

Bank owners yesterday urged the central bank to relax its various rules in a bid to increase their participation in the stockmarket, which has been passing through a tumultuous period for two months.

They also demanded the government keep representatives of bankers in the central bank's policymaking body.

"It's not our prime demand. We mainly want a reduction in the cash reserve ratio (CRR) as almost all the banks are facing a liquidity crunch due to over-investment," Nazrul Islam Mazumder, president of Bangladesh Association of Banks (BAB), told The Daily Star.

The BAB, a body of private commercial banks, placed a 14-point proposal at a meeting with Prime Minister Sheikh Hasina at her office. Finance Minister AMA Muhith and Prime Minister's Economic Affairs Adviser Mashiur Rahman attended the meeting. Mercantile Bank Chairman Abdul Jalil and Salman F Rahman, among others, were also present.

Hasina emphasised relaxing interest rates on loans for food grains imports to build necessary stocks, reports news agency UNB, quoting PM's Press Secretary Abul Kalam Azad.

In the proposal to the prime minister, BAB also urged the central bank to increase the credit-deposit ratios for banks by 5 percentage points. Now the ratios are -- 85 percent and 90 percent of deposits, for commercial banks and for banks engaged in Islamic banking respectively.

The association demanded relaxation of rules for banks to double their exposure to the stockmarket to 20 percent of their liability from 10 percent now. It also suggested allowing merchant banks to invest 10 times of their capital, which is 5 times now.

BAB also suggested calculating banks' investments in the stockmarket based on their purchase prices, instead of market prices measured presently by Bangladesh Bank.

“We want to increase investments in the stockmarket,” he said, adding that banks would be able to buy more shares if these rules were relaxed.

The BAB placed the proposal to Hasina at a time when banks are claiming a liquidity shortage due to over-investment in sectors, such as stockmarket, and tight monetary policies by Bangladesh Bank.

The central bank had earlier increased CRR as part of its move to mop up excess liquidity from the money market and discourage investments in unproductive sectors.

The BAB wants the government to waive the 13-percent cap on lending for one year, and keep the requirement to maintain 9 percent capital against risk-weighted assets unchanged in 2011.

The BAB president said these are not demands rather recommendations. “The banking sector is in trouble, that's why we have placed some suggestions to help banks recover from the difficult circumstances," said Mazumder.

News: The Daily Star/ Bangladesh/ Mar-03-2011