Sajjadur Rahman

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The central bank has launched an in-depth investigation into the financial institutions named in a probe report on the recent stockmarket crash, top officials of Bangladesh Bank (BB) said yesterday.

The BB has also written a letter to the government to amend a section of the Banking Companies Act 1991 that allows a bank to invest 10 percent of its liabilities (deposits) in the stockmarket.

If the proposal gets through, the new law will restrict banks' investment in the stockmarket by reducing the percentage of the deposits or fixing the rate in terms of equities (not deposits), which is an international standard practice.

“We have already ordered the related department to carry out a detailed investigation into the banks and non-banks that were found responsible by the probe committee in the alleged scam,” a top BB official told The Daily Star.

The central bank's decision came hours after the probe committee led by Bangladesh Krishi Bank Chairman Khondkar Ibrahim Khaled submitted its report to Finance Minister AMA Muhith on Thursday. The report recommended that the BB take action against the financial institutions in question.

The probe report said some banks pocketed huge profits violating the rules and regulations. Some of the banks were also involved in fuelling the stock prices last year.

Allegations have been made against some banks for taking high premium for rights and preference shares.

During the two-month investigation, the committee had talked to over 500 traders, including all members of Dhaka and Chittagong stock exchanges, journalists, professors and researchers.

The probe panel has made a series of recommendations, including a major overhaul of the Securities and Exchange Commission (SEC) and an amendment to section 26 (2) of the Banking Companies Act 1991.

“We have responded promptly on our part,” said the BB official on the investigation order against the financial institutions.

BB Governor Atiur Rahman confirmed the central bank's move.

“We have written to the government to amend section 26 (2) of the Banking Companies Act to restrict a bank's investment in the stockmarket,” Rahman said.

“Ideally, it should be related with the capital, not with the liabilities,” said the governor, citing examples of other countries.

According to the existing laws, if a bank has Tk 10,000 crore deposits, it can invest Tk 1,000 crore in the share market.

The BB found many banks were overexposed into the capital market last year. Some banks invested more than 10 percent of their liabilities and helped fuel the stock prices. Still a bank has more than 10 percent of its liabilities into the stockmarket, according to a senior official of the central bank.

sajjad@thedailystar.net

News: Daily Sun/Bangladesh/ Apr-10-2011