BB warns banks against excessive exposure to stocks

Posted by BankInfo on Wed, Feb 19 2014 11:22 am

The central bank yesterday warned banks against excessive exposure to the capital market, in a bid to ward off a bubble burst witnessed in the previous terms of Awami League.
Bangladesh Bank Governor Atiur Rahman came up with the warning at his first meeting with the chief executives of banks after a new government led by Awami League assumed power last month.
The money market and the capital market will complement each other within the law, and the central bank will strictly monitor all activities to prevent any deviation, he said.
Some banks are investing in the capital market beyond their permissible limit, which goes against the spirit of the recently amended banking law, Rahman said at the meeting at his office in Dhaka.
The governor discussed various issues, including the capital market, default loans and the overall macro-economic situation.
The stockmarket saw a boom when the Awami League-led government came to power in 2009. The market later went through a debacle, which analysts blamed on excessive investments by the banks.
SK Sur Chowdhury, BB deputy governor, told reporters after the meeting that the banks were asked to remain alert so that the crisis does not repeat.
Banks cannot invest more than 20 percent of their capital in the stockmarket, according to the amended banking companies act. The previous law allowed banks to invest 10 percent of their capital.
In line with the new law, the banks that invested more than the limit were asked to bring down the amount below the ceiling by July 2016.
The central bank found six banks have excessive investment in the capital market. The banks were asked to send a plan to the BB on how they would gradually bring down the amount to the acceptable level.
The amount of default loans decreased by 28 percent or Tk 16,137 crore in the fourth quarter last year. The BB governor said the amount fell as loans were rescheduled under a relaxed policy.
He also advised the banks to form a recovery unit to realise the bad loans.

News:The Daily Star/19-Feb-2014