Banks face tighter stockmarket rules

The central bank has tightened its reporting requirements on capital market activities for banks and its subsidiaries to monitor the market closely.

Under the revised provisions, the banks will have to submit their consolidated reports on capital market activities on a weekly basis instead of the existing fortnightly basis to the central bank.

Bangladesh Bank announced the decision on Tuesday.

With the latest decision, the central bank went back to November 2015 when it had relaxed the capital market exposure reporting rules for banks from weekly to two-week basis.

"Bangladesh Bank wants to monitor banks' investments to the capital market closely. This is a precautionary measure, nothing to worry," said Shafiqul Alam, managing director of Jamuna Bank.

Alam said weekly monitoring will help the central bank detect unusual transactions by banks in the market.

The central bank's decision came after a continued rally this year in the country's two capital markets. The rise in turnover and index -- the two most important indicators of the market -- in general suggests that the investors' confidence in the market is coming back.

But fears run deep among investors, as the stockmarket witnessed debacles twice -- first in 1996 and later in December 2010. The key index of Dhaka Stock Exchange, the premier bourse, crossed the 5,500-point mark with a turnover of Tk 2,000 crore this month for the first time in more than six years.

The index jumped around 9 percent last year and this year's growth is faster than the previous year.

On Tuesday, the market capitalisation of DSE hit an all-time high to Tk 369,502 crore exceeding the earlier record of Tk 368,071 crore on December 5, 2010.

"We want to tighten our monitoring on banks and its subsidiaries to ward off a bubble burst witnessed in December 2010," a central bank official said.

Talking to The Daily Star, several managing directors of banks confirmed the latest BB move, which ordered banks to submit the transaction data every Thursday and closely monitor the transactions and disbursement of margin loans by their subsidiaries.

The BB also passed the message on to the banks over phone, they said.

MA Halim Chowdhury, managing director of Pubali Bank, termed the BB move a 'good one' for the market and the investors as well.

"When a bank's exposure will go beyond the regulatory ceiling, it will offload shares in the market and investors will get the supply," said Chowdhury.

He said the recent hike in share prices pushed up Pubali's exposure; and accordingly they have sold out shares in the market for adjustment.

Banks cannot invest more than 25 percent of their capital in the stockmarket, according to the amended Banking Companies Act of 2013.

The previous law allowed banks to invest 10 percent of their liabilities, particularly deposits, to the stockmarket.