The finance ministry has endorsed a Bangladesh Bank proposal to form a revolving refinance fund exclusively for the ailing capital market.
The central bank received the approval letter of the ministry on February 6, BB officials said on Sunday.
The BB would issue a circular in this regard within a couple of days, allowing the scheduled banks to take money from the fund at an interest rate of around 5 per cent.
Brokerage houses, merchant banks, and stock market subsidiaries of banks and financial institutions would get access to the fund through the scheduled banks.
For the brokerage houses, merchant banks, and stock market subsidiaries of banks and financial institutions, the rate of interest would be within 7-9 per cent.
Banks along with the brokerage houses, merchant banks, and stock market subsidiaries of banks and financial institutions would be allowed to use the fund only for the investments on the capital market.
The institutions, which will take money from the scheme, will have to fulfil the BB’s criteria, to be set in the BB’s circular, while making investment in the listed scrips.
Dividend track record and earnings might be the criteria to be set by the central bank.
Individual investors would not be allowed to access to fund from the scheme as it is meant for the institutions.
The fund size would not be set in size instead the support fund would be for 5-6 years.
Banks, brokerage houses, merchant banks, and capital market subsidiaries of the banks and financial institutions would get flexibility to take and return fund at their convenience.
The country’s stock market has been in the doldrums for more than 12 months and on January 14 the key index of the Dhaka Stock Exchange, DSEX, hit a 56-month low amid the government’s inaction, prompting the central bank and the government to take supportive measures for the market.
On January 16, senior government officials in presence of prime minister Sheikh Hasina held a meeting at the Prime Minister’s Office and discussed measures, including injection of funds, to stabilise the capital market.
Amid the prolonged market fall, 25 stockbrokers demanded Tk 10,000 crore fund for a period of six years at a flat interest rate of 3 per cent with two years’ grace period.
Apart from the monetary support, the central bank will also provide policy support for the scheduled banks for enhancing their capability to invest on the stock market.
A BB official said that the central bank had monetary and policy support with a view to ensuring long-term stability for the capital market rather than fixing it on a short-term basis.
Earlier on September 22 last year, the BB offered repurchase agreement (REPO) facility to the banks at the rate of 6 per cent interest for investments on the capital market.
The facility drew a very little attention as only City Bank took Tk 50 crore under the scope despite the fact that the banks had a scope for borrowing around Tk 3,000 crore from the BB under the facility.
In 2019, the central bank provided banks a couple of policy facilities regarding the capital market, but no improvement in the market situation was observed.
The central bank has excluded banks’ investments into the non-listed securities from their capital market exposure to offer banks more space to invest on the capital market.
Weak governance on the capital market, falling export, import and private sector investments, and dismal state of the banking sector have remained major concerns for investors.
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