Owners of commercial banks yesterday decided to launch a Tk 5,000 crore fund in an effort to give financial support to the stockmarket now facing a severe liquidity crisis.

As a sponsor, the banks will initially pump Tk 1,000 crore into the market through the fund -- Stock Market Stabilisation Fund.

“Owners of 29 banks have promised to contribute at least Tk 20 crore each to the fund, and they will take permission from their own boards within next one week,” said Nazrul Islam Mazumder, president of Bangladesh Association Banks (BAB).

It will be a closed-end fund in nature having 10 years in maturity period. “The total fund size, however, may be increased,” he said.

The pre-IPO (initial public offering) placement will be for Tk 2,750 crore, while the rest Tk 1,250 crore will be raised from public through IPO.

The BAB, a platform of the commercial banks, yesterday sat at a meeting to find out the details of the fund including its formation and structure. Their announcement came after a platform of top executives of the banks -- Association of Bankers, Bangladesh (ABB) -- last week pledged to start fresh investment from this week.

Although the banks are allowed to invest up to 10 percent of their liabilities, most banks' current exposure to the stockmarket is 3 percent on an average.

“We will request the central bank not to include the banks' contribution to the fund in the stockmarket investment exposure,” said the BAB chief after the meeting.

Mazumder also said if any institution wants to contribute more to the fund, it will be allowed.

Apart from banks, he said, insurance companies, non-bank financial institutions and listed firms can also sponsor the fund.

“We have already talked with some listed companies and they agreed to be sponsors,” he said, adding that they can be included in the fund with a minimum Tk 10 crore each.

The fund will be managed either by a newly formed asset management company or by an existing one.

“The entrepreneurs will have no connection in managing the fund. The asset management company will manage it by its own mechanism,” said Mazumder, also chairman of Exim Bank.

Asked whether the fund is related to a 'market stabilisation fund' initiated by the private sector last month, he said, the existing one is an outcome of that initiative.

The private sector had earlier stepped in to rescue the ailing stockmarket with the plan of the market stabilisation fund that also aimed to give a new lease of life to retail investors who incurred losses.

AK Azad, president of the Federation of Bangladesh Chambers of Commerce and Industry, on September 29 announced a concept paper on the market stabilisation fund after a meeting with private sector stakeholders, the stock exchanges and a group of retail investors.

“The purpose of the fund is to mitigate the financial losses of retail investors, especially those who trade on credit,” Azad had said.

However, Mazumder said the new fund will positively impact the market.

“We will go to the Securities and Exchange Commission for permission after the banks receive a go-ahead from their boards to sponsor the fund,” he added.

News: The Daily Star/ Bangladesh/ 24-Oct-2011