Banks need not sell excess shares, can internally adjust

Banks need not sell excess shares, can internally adjust

Siddique Islam and Mohammad Mufazzal

Banks detected with overexposures on the capital market need not sell off excess shares for compliance with legal limits within the stipulated timeframe as per fresh government policy support.  

Under the revised policy supports extended by the central bank, the banks are allowed to get their overexposures adjusted through restructuring the exposure components and enhancing the capital of their subsidiaries with some internal adjustments.

"No sale pressure will be created on the banks after providing such policy supports. The banks also need not sell off shares," the Bangladesh Bank said in an announcement made on Wednesday evening.

"It's a policy support to the banks for maintaining legal requirement within the stipulated timeframe," SK Sur Chowdhury, deputy governor of the BB, told the FE after the announcement.

The country's banks can now adjust their overexposure in the share-market investments within the permissible limit without amendment of the existing act, Mr. Sur Chowdhury explained.

The central bank earlier had asked the banks to bring down their overall capital-market investment within 25 per cent of total capital by July 21, 2016 in line with the Banking Companies (Amended) Act 2013.

According to the Banking Companies Act 1991 (Amended 2013), total capital comprises four components: paid-up capital, balance in share- premium account, statutory reserves and retained earnings, as stated in the latest audited financial statements.

While calculating total investment in capital market different components like all types of shares, debentures, corporate bonds, mutual fund units and other capital-market securities will be taken into account.

Currently, 8-10 commercial banks are maintaining more than 25 per cent market exposures while all banks' exposures stood at 23 per cent, another BB official said.

"We expect that such policy supports will help in bringing stability in the country's share market," the central banker explained.

According to the central bank, all banks' capital-market exposure was worth Tk 161 billion that dwindled by Tk 65 billion recently following the subtraction of banks' equity investments made in their subsidiaries.

Earlier, the central bank excluded the banks' equity investments from their market exposure in a bid to increase liquidity on the bourses.

Stakeholders hailed the latest BB moves, hoping that it will help enliven the country's securities-hungry capital market to some extent.

Md. Rakibur Rahman, a former Dhaka Stock Exchange president and incumbent director, said they were concerned about sale pressure related to adjustment of banks' overexposure.

"I appreciate the BB's policy supports. It will be positive for the capital market if the banks' overexposures are adjusted without needing to sell shares," said Mr. Rahman, terming the BB attitude market-oriented.