The Bangladesh Bank finally on Monday allowed banks to form a Tk 200-crore special fund each by taking low-interest loans from the central bank to invest in the stock market.
A central bank circular issued on the day in this regard said that the fund would be valid till February, 2025 and the banks would be allowed to take money under the scope till January 13, 2025.
The fresh investments that would be made by the banks under the facility would not be calculated as their solo or consolidated capital market exposure.
To keep the fresh investments out of the exposure, the BB also waived relevant clause of the bank company act for five years.
The central bank would issue the fund to the banks against the treasury bills or bonds held by them at the rate of 5 per cent.
As per the BB data, scheduled banks were holding government treasury bills and bonds worth Tk 1,95,155.49 crore as of January this year.
The number of scheduled banks operating in the country is 59.
Officials of the central bank said that the facility would help stabilise the capital market for a longer period of time instead of fixing the market on a short-term basis.
If 30 banks take fund from the central bank under the facility, the total money supply to the capital market by the central bank would reach Tk 6,000 crore and the figure would exceed Tk 10,000 crore if more than 50 banks take the facility.
The banks will be allowed to invest the fund in the capital market by their own portfolio or through their capital market subsidiaries’ (merchant bank or brokerage houses) portfolio.
Besides, the banks will be allowed to provide the fund to the merchant banks or brokerage houses for investment in the capital market.
In case of issuing loans to the merchant banks and brokerage houses, the banks would be allowed to charge up to 7 per cent.
The BB also specified that 40 per cent of the fund could be used for stocks investment through the banks’ own portfolio, 20 per cent of the fund could be provided as loans for making investments through the subsidiaries’ own portfolio.
Another 30 per cent of the special fund can be provided to other banks’ and financial institutions’ merchant banks and brokerage houses for investments and the rest 10 per cent for other merchant banks and brokerage houses.
Each of the entities will have to ensure that 10 per cent of the fund to be created under the facility must have to be invested in the mutual funds and another 10 per cent in the special purpose fund.
The BB said that a bank could invest the fund only in listed entities, fixed income securities, including government treasury bonds, special purpose funds approved by the Bangladesh Securities and Exchange Commission, close-end mutual funds and open-end mutual funds.
The central bank set a number of conditions for investment of the fund.
A bank cannot invest the fund in its own shares while it cannot invest the fund for buying more than 2 per cent shares of any bank or non-bank financial institution. The bank cannot invest the fund for buying more than 10 per cent shares of any other listed company.
For investment in securities, a bank must select companies which paid 10 per cent cash or stock dividend in the last three years and have free-float shares of up to 70 per cent.
For investment in mutual fund, a bank must select closed-end mutual funds which paid 5 per cent cash dividends in the last three years and open-end mutual funds whose net asset values are below the face values and which paid 5 per cent cash dividend in the last three years.
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