Bangladesh Bank has relaxed the rules related to banks' investment in stocks in a move that analysts say would boost the ailing market.

From January, banks' capital given to their stockmarket subsidiaries will not be counted as stockmarket exposure, the central bank said in a notice yesterday.

The Banking Companies Act 1991, which was amended in 2013, has limited a bank's stockmarket exposure to 25 percent of its capital. The capital includes paid-up capital, share premium, statutory reserve and retained earnings.

The latest development will enable banks to make fresh investments in stocks, although the stockmarket exposure remains unchanged at 25 percent of their capital, said a senior official of the central bank.

There are 51 full-fledged merchant banks in Bangladesh, and most of them are owned by banks as their subsidiaries, according to Bangladesh Securities and Exchange Commission.

Stakeholders such as banks, merchant banks and brokerage houses have welcomed the move, which they believe would bring dynamism to the bearish market.

The decision will give banks a cushion against the hardship they are facing now with poor business, said MA Halim Chowdhury, managing director of Pubali Bank.

Pubali's subsidiary merchant bank has a paid-up capital of Tk 160 crore.

But from next month, it will no longer be counted as the bank's capital market exposure, meaning Pubali will get some fresh funding capacity to invest in stocks.

Similarly, AB Investment Ltd, a merchant bank owned by AB Bank, has a paid-up capital of Tk 500 crore.

If AB Bank's capital, including reserves and surplus stands at Tk 2,000 crore, it cannot invest a single penny in the stockmarket, as it would have already reached its exposure ceiling by way of its merchant bank.

The move to relax the conditions comes as the BB was under tremendous pressure to extend the deadline for banks to bring down their stockmarket exposure to 25 percent of their capital.

“But that is not possible without changing the law, which is also time-consuming. So, we have done it in another way,” a central bank official said.

Non-bank financial institutions also own some of the merchant banks, and another BB official hinted that a separate directive may be issued for them soon.