Bangladesh’s commercial banks’ exposure to the stock market came down to almost four-fifth of their legal limit—in a sign of avoiding risky investment on stocks which remain extremely volatile over the years. As of March this year their total investment stood at around Tk 160.0 billion (Tk 16,000 crore) or 2.30 per cent of their total liabilities, according to statistics of the Bangladesh Bank.

The figure is far below from legal 10 percent limit of the banks’ total liabilities allowed by the central bank to invest in stock market.

About two years back when the market was booming, the exposure scenario was a much different.
Of then 44 banks, 12 invested more than 10 percent of their liabilities in stocks.

The exposure of three banks was more than 20 percent of their liabilities, while another three banks exceeded 15 percent. When the stock market was at its peak in December 2010, investment by the
banks was Tk 230 billion (Tk 23,000 crore) in terms of market value.

An official of a private bank said his bank's investment decreased in the last two year, as stock prices experienced sharp fall.

He however said their real investment remained almost same.

A high official of a state-owned commercial bank said though stock market is risky; they are still investing cautiously since it is depositors’ money.

They invest in companies that give profits to their share-holders and have a good price earnings ratio.
Massive fall in stock prices over the years also put a lid on the bank’s profitability. Since its peak in 2010, the benchmark index lost more than half of its value as of June 26, 2012.

The market capitalisation declined 35.59 per cent to Tk 2,370 billion during the period.
From stock market in 2011, the private commercial banks made a profit of Tk 8.56 billion, down 69 per cent to Tk 27.371 billion a year earlier, the BB figure showed.

As of March this year, the four state-owned banks held 3.13 percent of their liabilities in the stock market, and 4.31 percent of the 24 private commercial banks' liabilities was invested in the market.

The total exposure of the two specialised banks to stock market declined to 4.22 per cent and of the foreign banks, exposure was to the tune of 0.07 per cent in March.

Former finance adviser to the caretaker government Mirza Azizul Islam said the banks avoid risky investment in stock market that is on the slide for long time.

“As they manage depositors’ money, they invest cautiously,” he said.

He, also the ex-chairman of Securities and Exchange Commission, said return from stock market is not good right at this moment as the market continued to slip.

“But bank as institutional investor can invest at the fundamentally strong companies as price earning ratio comes down to investable level,” he said.

The Daily Independent/Bangladesh/ 29th June 2012