Banks' exposure to the stockmarket is now well below the legal limit due to the downward trend of the market and a cautious policy adopted by the banks.
Banks' total exposure to the share market, as of September 30, stood at Tk 16,988 crore, which is 3.10 percent of their total liabilities, according to data from Bangladesh Bank.
Rules say banks can invest up to 10 percent of their liabilities in the stockmarket, but the highest exposure by any bank stood at 7 percent.
The four state-owned banks held 3.29 percent of their liabilities, or Tk 4,676 crore, in the capital market, while 23 of the private commercial banks had 3.94 percent of their liabilities, or Tk 10,299 crore.
Holdings of the six Islamic banks were even less: 1.53 percent of their liabilities, or Tk 1,500 crore.
Apparently, the government indirectly encouraged banks to invest in the share market, as per a senior official of Janata Bank preferring to remain unnamed.
But the banks were put off by the sluggish trend of the market. “Many banks suffered losses after investing in the stock market, which brought down their third quarter profits,” a banker said.
An official of Al-Arafah Islami Bank said the banks have taken on a measured approach after all the criticism they have received over their market exposure.
However, some banks are still investing considerably to recover their losses.
“Yet the stockmarket is not showing any bullish trend,” the Al-Arafah official said.
After the current government assumed power in 2009, the stockmarket showed a bullish trend, as a result of which many banks made invested beyond their limits.
In 2010, the share market, however, plunged into a bearish trend, and the banks' heavy exposure came under criticism from various quarters then.
A high official of the central bank said the banks' exposure in the share market in absolute terms is still Tk 1,000 crore more than the same period last fiscal year.
The banks' present investment in the stockmarket, in absolute amounts, is much higher than in many countries of the world.
The International Monetary Fund and the Asian Development Bank recommended to the government that the banks' investment in the capital market should be 25 percent of the bank's capital instead of its deposits (liabilities).
“All over the world banks' investment in the share market is related with capital, not deposit,” a BB official said.
The finance ministry official said the government is actively considering the IMF and the ADB recommendations, but they would like the investment threshold to be 40 percent, instead of 25 percent of capital.