The Bangladesh Bank on Monday directed the commercial banks to reduce their stock market investment to 25 per cent of the total of four components of core capital in the share market by 2016 in line with the newly enacted bank companies act. 

The BB directive also said from now on banks have to submit their stock market investment report to the offsite supervision department of the central bank within 10 days after a month ends.

 
It also provides a chart for the stock market reporting of the banks.

According to BB directive, the banks can invest into shares, corporate bonds, debentures, mutual funds or any other stock market instrument or funds up to 25 per cent of their core capital that includes paid-up capital, share premium, statutory reserve and retained earnings.

The directive said the banks’ loan to any subsidiary company which is directly or indirectly involved with the stock market operation will be counted as stock market investment. 

The directive also said the loan to banks’ subsidiary merchant banks or any other company will follow the single borrower rules of the central bank. 

It, however, said banks’ loan to stock dealers for buying A and B category shares/debentures can be 60 to 70 per cent of the market price but it cannot be more than Tk 3 crore. 

The BB directive issued on the day also spelled out the investment which will not be considered as capital market investment. 

It said land ownership documents and mortgage paper, shares of non-listed public enterprises, sub-debt instruments issued by other banks,

share of Central Depository Bangladesh Ltd and stock exchanges will not be considered as capital market investment. 

Earlier, banks could invest up to 10 per cent of their total liabilities in the capital market.

The new limit means that the exposure limit for banks in the capital market would be lower after 2016.
The BB directive comes after the parliament in July passed the Bank Company (Amendment) Bill - 2013 which redefined banks’ capital market exposure. 

The act said that within three years of enactment of the law the banks have to lower their investment to the new limit.
Capital market stakeholders said that the banks currently have around 2-3 per cent of their liabilities in stock market investment. 

The bill also keeps a provision of maximum Tk 20 lakh as fine for investing more than the new limit in the share market by the bank companies.

In case of continued violation of this provision, another Tk 50,000 will be fined per day from the second day of breaching the law.