Raihan M Chowdhury and Mohammad Mufazzal

Top brokers have sought the central bank's intervention and finance minister in two core areas of bank's investments in the capital market to help stabilise the markets, officials said.

In this regard, the brokers urged both the bourses to put forward their demand to the Bangladesh Bank (BB) and the finance minister.

The representatives of top brokers Monday held a meeting with the chairman of the Chittagong Stock Exchange (CSE) Dr Muhammad Abdul Mazid and submitted two proposals.

In their proposals, the brokers have sought the extension of timeframe for adjusting banks' over exposure up to December 31, 2020 from existing deadline set on July 21, 2016.

"There are not adequate depth in the market that can absorb sell pressures worth between BDT 60.0 billion-70.0 billion (6000- 7000 crore) resulting from forced sale/ liquidation of the 'so-called' excess exposure of banks. The deadline, therefore, should be extended at least up to 31st December, 2020," one of the sources was quoted after the meeting.

Another proposal is to exclude banks' equity investments made in subsidiary companies and the investments made in non-listed securities from the bank's exposure limit set at 25 per cent of eligible capital.

The brokers recently submitted same proposals to Dhaka Stock Exchange (DSE) and sought its help in convincing the central bank.

"At Monday's meeting we have been requested to submit the brokers' proposals to the central bank and finance minister. After scrutinising the proposals we will submit these on behalf of the brokers," said Mr. Mazid, the chairman of the CSE.

The managing director of a leading brokerage firm said proper coordination of regulatory bodies is not reflected in the capital market.

"We hope the market will be stabilised if our demands are fulfilled through proper coordination of the regulatory bodies," said the managing director who also attended the Monday's meeting.

At the meeting, the representatives of Al-Arafa Islami Bank, EBL Securities, International Leasing, MTB Securities, NCC Bank Securities and IDLC securities were present.

The meeting was told that BB in 2010 took several measures within a very short time for controlling the 'high tide' of the stock market and instant implementation of those directives adversely affected the stock market.

According to market insiders, as per the Bank Company Act 1991, Banks/NBFIs were allowed to invest 10 per cent of their total liabilities in the stock market. But due to lack of proper monitoring on the part of BB, many banks invested as much as 40 per cent of their total liabilities in the stock market in 2010.

 Later in 2013, by amending the Bank Company Act, the allowable investment in stock market was set at 25 per cent of 'eligible' capital (Paid-Up Capital, Share Premium, Statutory Reserve and Retained Earnings).

Market insiders pointed out that due to the amendment, a bank which invested BDT 10.0 billion (1000 crore) in 2010 can now invest only BDT 2.50 billion (250 crore) to BDT 3.0 billion (300 crore) in the stock market.

This amendment has completely stopped stock market participation of banks and also they are under constant pressure from BB to sell-off their shares (even at loss) further deteriorating the market conditions.

The meeting was further told that exposure in stock market is calculated by using all types of securities/ shares (Private, Public, Redeemable Preference and Non-Listed). Only the listed stocks should be treated as exposure because it is not logical to include non-listed companies for calculating the 'capital market' exposure as they are not listed in the stock exchanges.

As per the new rules, banks are directed to reduce their exposure and liquidate excess exposure within 21st July 2016 which created heavy sell pressure in the stock market.

"Initially BB circulars said (DOS circular # 4, in 2010 and DOS circular # 4 in the year 2011) that the subsidiaries' capital will not be considered as capital market exposure of banks. But now Bangladesh Bank includes the subsidiaries' capital as capital market exposure of banks which is contradictory to BB's own circulars," an executive of another top brokerage house said.

On capital market exposure, the meeting was told that the exposure should be calculated on the basis of listed securities in stock exchanges only.

"Companies which are not listed in stock exchanges should be kept out from the exposure calculation," the proposals demanded.