Previously, banks shared this information with the central bank once a fortnight
As banks pour money into short-term loans, Bangladesh Bank (BB) thinks they can turn to various unproductive sectors, including the stock market.
For this, they asked the banks to provide daily information on the use of funds apart from lending and placement (interbank deposits).
Previously, banks shared this information with the central bank once a fortnight.
They have also been instructed to receive separate daily reports on the money they (the banks) have invested on their own, as well as that of their affiliates.
In this regard, the Executive Director and Spokesperson of Bangladesh Bank, Sirajul Islam, said that Bangladesh Bank must be informed about the destination of a bank’s money.
“For this, information was sought on a daily basis for supervision. A letter was published in this regard last week,” he added.
In this letter to the managing directors (MDs) of the public-private banks, it was ordered to submit the daily information on the bank’s transactions in the foreign exchange market daily before 5 p.m. according to the schedule.
A table is also attached to the letter. There, the amount of the bank’s daily investment in the currency market and the actual investment at the end of the day should be mentioned.
In addition, the bank must mention in the table the number of loans it has granted to its associated brokerage and merchant banks, the number of loans or investments it has adjusted and, at the end of account, the actual value of the loan or investment.
A Bangladesh Bank source said they have taken the decision to strictly monitor the cash flow to the capital market as money is now cheaper than ever and interest rates are low in the banking system.
Banks can invest up to 25% of their regulatory capital in the stock market. The bank’s paid-up capital, unrestricted earnings in the reserve fund, bonus income, and performance income are the four components of regulatory capital.
However, at the end of June, the average investment of banks in the stock market was 14.5%.
Apart from this, each bank can invest up to Tk 200 crore by setting up a fund, which is outside the limits of the bank’s investment in the stock market.
Banks have so far invested Tk 1,782 crore in the stock market through this special facility.
In a letter sent to banks on July 25, the central bank asked them to strengthen their internal control to ensure that stimulus loans are used in targeted sectors.
The Bangladesh Bank, in an early observation, found that low-cost stimulus loans diverted to unproductive sectors like the capital market can lead to failure to achieve goals.
To ensure a smooth flow of money in the market, the central bank has already started to mop up excess liquidity from the banking system through Bangladesh Bank Bills auctions.
In this way, Bangladesh Bank has so far mopped up Tk 8,675 crore from scheduled banks.
Experts said that as a result of these measures, there has been a pause in the rally in capital market transactions over the past two days.