The central bank plans to exempt foreign banks from the mandatory requirement of a subsidiary to participate in the stockmarket for the sake of development of the country’s capital market.

Bangladesh Bank has already sought opinions of the banking division of the finance ministry in this regard.
“If they are not exempted from the related article of the banking companies law, portfolio investment might be hampered,” the central bank said in its letter to the finance ministry.

The recently amended law has made it compulsory for banks to form a separate subsidiary if they want to give share-market services—a time-consuming and tricky process for the foreign banks.

To form the subsidiary, the foreign banks would require approval from their headquarters, which, in turn, would require authorisation from their regulators.

As the size of the capital market in Bangladesh is still small, the headquarters of the foreign banks are unlikely to give permission for separate subsidiaries.

A high official of the central bank said among the foreign banks in Bangladesh four have been providing custodian services to foreign multinational banks and financial institutions in the share market.

The amount of portfolio investment of the foreign financial institutions through Standard Chartered Bank, Citibank NA, HSBC and the Commercial Bank of Ceylon is more than $1.2 billion.

“As these banks account for the lion’s share of the external portfolio investment in the country, the problem caused by the recently amended law should be resolved,” said the central bank letter.

“Otherwise, the stability of the stockmarket might be hampered,” it added.

The central bank in consultation with the government can exempt any bank from setting up the subsidiary.