BB assures BSEC of policy support for stock, bond markets

Bangladesh Bank recently assured the Bangladesh Securities and Exchange Commission (BSEC) that it would continue providing policy support to develop both the stock and bond market.

In a letter to the BSEC on Monday, the central bank said the scope for scheduled banks to invest in the stock and bond markets rose after it had allowed banks to consider the cost price of securities in calculating the exposure limit.

The exposure limit refers to the amount of money invested in listed securities purchased by banks.

As per the Banking Companies Act 1991, a bank's investment in the markets is limited to 25 per cent of its capital, which includes paid-up capital, share premium, statutory reserve and retained earnings.

In response to the longstanding demand of general investors, the BSEC had previously asked Bangladesh Bank to allow banks in the country to use cost prices instead of market prices for calculating their exposure limit.

The cost price refers to the value at which the security was purchased.

Investors hope that banks would widen their investments if given the scope and thereby improve the market condition.

Following the BSEC's request, the central bank issued a notice last month that gave permission for banks to calculate their exposure limit based on the cost price of all shares, mutual funds, debentures and corporate bonds they purchase.

In addition, Bangladesh Bank had rolled out a separate fund for banks on February 10, 2020, so that any bank in the country can take loans of up to Tk 200 crore for investing in the capital market.

In a letter to the BSEC on Monday, the central bank said the scope for scheduled banks to invest in the stock and bond markets rose after it had allowed banks to consider the cost price of securities in calculating the exposure limit

The banking regulator provides banks with the funds through a repurchase agreement against the treasury bills and bonds they own.

Banks have to pay 5 per cent interest on the loan while the credit tenure will be up to February 2025.

Besides, banks can invest in bonds that are listed and secured by bank guarantees and so, they have the scope to invest more in the bond market, the central bank said in its letter.

"So, for the sake of the financial sector and to develop the bond market, Bangladesh Bank's policy support will continue," it added.

The central bank's assurance came at a time when the stock market was in a falling trend for the past few weeks before bouncing back.

The DSEX, the benchmark index of the Dhaka Stock Exchange, dropped a total of 1,125 points from February to August this year. However, it recovered around 500 points in the last one month.

On condition of anonymity, a top official of an asset management company said the central bank's letter gave nothing but a commitment that it would be supportive to the stock and bond markets.

"The letter brought on a positive sentiment among investors," he said, adding that the central bank has extended supportive measures in recent times.

A top official of the BSEC said both regulators are working for the development of the financial sector, including the stock market.

"The central bank expressed its commitment that it would be supportive to the market as it has an important role in financing entrepreneurs," he said.

"So, I hope investors will be happy to know of the commitment," the BSEC official added.