BB assures businesses of support to revitalise capital market

FE Report

The Governor of Bangladesh Bank, Dr. Atiur Rahman, said on Monday that the commercial banks would be free to make their own business decisions about use of funds in excess of the amount to be required for making adjustments of losses in the capital market."There can be no question of coercing them to investment in the capital market at the directive of the central bank," he stated.

During a meeting with the leaders of the Federation of the Bangladesh Chamber of Commerce & Industry (FBCCI) -- the country's apex trade promotion body, the central bank chief said the Bangladesh Bank (BB) has earlier directed the banks to set aside their capital market investment gains, made in 2010, for adjustment of losses in the subsequent period.

Making a response to the FBCCI's demand for taking effective measures to bring back the institutional investors, who had earned hefty profits from trading in shares, to the stock market, Dr. Atiur Rahman said the BB did nothing to restrain the banks from capital market investments, beyond cautioning them about the statutory ceiling on such investments.

The central bank issued such an advice to the banks in April 2010 well ahead of the time when the stock prices were getting overheated, he said.

He strongly refuted the allegation made by certain quarters about the BB as having restricted the banks to invest in the stock market at a time when the prices there getting higher in the later part of 2010.

"It is curious that those now blaming the BB for inaction were themselves actively lobbying to pressurize the central bank to prolong the compliance timelines for banks," the central bank chief noted.

However, the FBCCI President AK Azad told the reporters after the meeting that the central bank had agreed to bring back the institutional investors, who had earned hefty profits from trading in shares, back to the stock market.

"The BB will monitor the issue closely," the FBCCI chief told the reporters replying to a query.
The liquidity pressures in the money market will ease after announcement of the national budget on June 9, the FBCCI chief said, while estimating that around Taka 26 billion of fresh fund would be channelized to the banking system shortly because of the government's development expenditures.

At Monday's meeting with the FBCCI functionaries, the central bank assured the country's top business leaders about providing support for bringing stability back to the share market. But it rejected the demand to re-impose the lending rate cap.

The meeting with the FBCCI leaders was held at the central bank with BB Governor Atiur Rahman in the chair.

"We'll provide technical support to bring back stability in the country's capital market," Executive Director of the BB Jahangir Alam told reporters after the meeting.

"There is no scope to re-impose lending cap at this moment," Mr. Alam said, adding that the central bank is monitoring the interest rate movements closely.

He also said the central bank has extended the time-frame for adjustment of 'single borrower exposure limit' for brokerage houses and merchant banks which are the subsidiaries of commercial banks, for a maximum period of six months.

President of the Bangladesh Association of Publicly Listed Companies (BAPLC) Salman F Rahman suggested for increasing the supply of shares to avoid any possible bubble in the capital market in the future.

"If the supply side is not ensured there could be another bubble in the capital market," Mr. Rahman said, adding that at least 60 companies are in the pipeline to get listed on the bourses.
He also advocated for establishing a separate trading board for small-cap companies.
Among others, President of Metropolitan Chamber of Commerce and Industry (MCCI) Amzad Khan Chowdhury, President of Dhaka Chamber of Commerce and Industry (DCCI) Asif Ibrahim, President of Bangladesh Garment Manufacturers and Exporters Association (BGMEA) Shafiul Islam Mohiuddin, President of Bangladesh Knitwear Manufactures and Exporters Association (BKMEA) Salim Osman and President of Bangladesh Textile Mills Association (BTMA) Jahangir Alamin also attended the meeting.

Source: Financial Express (31 May 2011).