The government’s promise of credit support for the capital market finally came through yesterday after the central bank announced its package.
Each bank will be allowed to form a fund worth Tk 200 crore by way of taking financial support from the central bank to ultimately invest the money in the stock market, according to a Bangladesh Bank notice sent out to banks.
The lenders will take the fund from the central bank through repurchase agreements (repo) against treasury bills and bonds owned by them.
The banks will have to pay 5 per cent interest for the fund and the credit tenure will be until February 2025. The lenders will be allowed to show the fund as special investment, which will not fall within the purview of the banks’ stock market exposure of up to 25 per cent of their capital.
The Banking Companies Act 1991 limits a bank’s stock market exposure to up to 25 per cent of its capital -- and that includes paid-up capital, share premium, statutory reserve and retained earnings.
The banks, however, will be allowed to initiate forming the fund by injecting money from their own sources and later taking funds from the central bank.
The BB bailout comes as merchant banks and stock brokers had long been demanding a special support to resuscitate the capital market, said a central bank official. The central bank has taken suggestions and prior approvals from the finance ministry while taking decisions to this end, he added.
At least 10 per cent of the fund will have to be invested in open-ended or closed-end mutual funds, while another 10 per cent must be invested in special purpose fund.
The mutual funds, which have been providing at least 5 per cent cash dividend for the last three years, will be considered for the banks’ investment.
The banks can invest in the equity shares of listed companies that have been providing at least 10 per cent dividend for the last three years.
They will have to invest at least 40 per cent of the fund by way of opening fresh portfolio in their own names.
Some 20 per cent of the fund will have to be invested by creating new portfolio of the banks’ subsidiary companies.
The banks will invest 30 per cent of the fund in subsidiary companies of other banks or financial institutions.
The rest 10 per cent of the fund must be invested in new portfolio of other merchant banks or brokerage houses.
The banks must report to the BB on the details of their special investment under the package every three months.
The stock market has been on a downward curve for long: on January 14, the benchmark index of the Dhaka Stock Exchange plummeted to 4,036 points and turnover fell to Tk 250 crore.
One year ago, the index was at 5,950 points and turnover around Tk 1,000 crore.
During the time, the DSE’s market capitalisation dropped by Tk 108,184 crore.