The central bank’s decisions on stock market related issues irks stock market regulator

The Bangladesh Bank’s policy decision related to capital market has sparked a heated debate among the stakeholders of the stock market at a coordination meeting at the central bank headquarters in Dhaka yesterday.

The debate started over the central bank’s latest instruction to the banks to limit exposure of their subsidiaries in the capital market, said an official who attended the meeting with Governor Atiur Rahman in the chair.

He said mainly the officials of Bangladesh Bank and Bangladesh Securities and Exchange Commission (BSEC) locked in the altercation in the closed-door meeting also attended by representatives from Insurance Development and Regulatory Authority (IDRA) and Microcredit Regulatory Authority (MRA).

According to a Bangladesh Bank circular issued on February 25, the total investment of a bank and its subsidiaries has been restricted to 50% of a sum of consolidated paid up capital, balance in share premium account, statutory reserve and retained earnings.

Earlier, there was no limit for the subsidiary companies of the banks.

The coordination meeting was told that the restriction has “created panic” among the retail investors in the stock market as they feared the central bank decision would “cause a free fall” of stock prices.

The market witnessed a fall of about 60 points in three consecutive sessions after issuing the circular as investors became skeptical about the possible impact of the order, an executive of a brokerage house said. 

Besides, last month banks have been asked to submit their capital market investment portfolio everyday to Bangladesh Bank instead of every month.

Bangladesh Bank took the decisions without discussing with the stock market regulator BSEC, an official told the Dhaka Tribune yesterday.

In accordance with a finance ministry circular issued on February 19, 2012, the central bank needs to hold discussion with the BSEC before issuing any instruction related to capital market.   

At yesterday’s coordination meeting, the BSEC chairman and commissioners raised the issue as to why the central bank had not informed them about the investment limit for banks, which is related to  capital market.

At one stage, Bangladesh Bank, however, decided to review the decision of submitting investment portfolio everyday.

“In the context of BSEC demand, we took the decision to review the time frame of submitting investment portfolio by banks,” Deputy Governor SK Sur Chowdhury told reporters after the meeting. “We also agreed with BSEC that the capital market related decisions will be taken through co-ordination.”

BSEC Commissioner Amzad Hossain said the central bank assured them of coordination while taking decision on the stock market issues.

Earlier, the lack of co-ordination between the two authorities was marked in the share market inquiry report in 2011 as major cause for share market disaster in late 2010.

There was astronomical rise in the share market in 2009-2010 period due to over investment by banks. Maximum bank had invested above 10% of their liabilities.

Bangladesh Bank asked the banks to cut down their investment from capital market and tighten their supervision. The central bank took the decision without discussing with the capital market regulator. As a result, the market fell into debacle.

Under the circumstances, the finance ministry issued the circular ordering that discussion or suggestion needs to be held with BSEC in the sphere of taking any capital market related decision or commentary.

The two regulators had agreed upon holding at least one monthly meeting, which was not held regularly.