The suggestion came at the bankers’ meeting at the central bank headquarters in Dhaka

Bangladesh Bank yesterday asked the commercial banks to bring down their capital market exposure gradually in line with the law so the stock market does not see drastic fall.

The suggestion came at the bankers’ meeting at the central bank headquarters in Dhaka.

“The banks have been asked to cut their capital market exposure gradually within three years. Because if they cut their investment at a time after three years, then capital market might face freefall,” Deputy Governor SK Sur Chowdhury told reporters after the meeting.

Pointing fingers at the share market debacle in late 2010, he said banks should be careful in share market investment so that history of debacle is not repeated. 

Pubali Bank Managing Director Helal Ahmed Chowdhury said the central bank asked not to go for drastic share sale and also to keep support to the capital market’s stability.

In September 2013, the BB directed the commercial banks will have to reduce their capital market exposure to 25% of their equity by July 2016 in accordance with the new bank company law.

The directive came two months after the parliament passed the Bank Company (amendment) Act.

Under the law, the banks still having higher exposure to the stock market will have to reduce it to 25% of their paid-up capital, reserve, retained earnings and share premium.

During calculation of their total investment in stocks, the banks will have to take elements like all kind of shares, debenture, corporate bonds, mutual fund units and other securities into account.

Banks will have to follow all necessary banking rules and regulations in lending credit to their subsidiary companies like brokerage firm, merchant bank and other similar institutions.

After the present government’s assuming power in 2009, the stock market showed a bullish trend and many banks invested beyond their limits. But after a price debacle in late 2010, the banks’

huge exposure came under criticism from various quarters. The International Monetary Fund and the Asian Development Bank recommended that the banks’ investment in the capital market should be 25% of their equities instead of deposits (liabilities).