FE Report (January 25, 2011)
Some eminent bankers, economists and stock analysts recommended Monday a limited exposure of banks to the country's stock market, reports BSS.
The recommendation came when some people were demanding banks' increased exposure to stock market to help restore of stability.
Sources in the Bangladesh Bank (BB) told the news agency that the governor already held separate meetings with the chief executives of the banks that have earned substantial amounts of profit by investing funds beyond the permissible limit under the Bank Company Act.
According to the sources, the aggregate profit earned by some banks from stock market stood at Tk 20 billion. The Act limits a bank's investment in capital market to a maximum of 10 per cent of its total liabilities.
The governor at the meeting was learnt to have advised the respecting banks to deposit the money with the central bank as their reserve, which would eventually help them increase their lending capacity.
"This is a good idea," said former BB governor Dr Saleh Uddin Ahmed.
He said the central bank could not take risk on depositors' money by allowing banks to invest in any risky venture like capital market beyond their permissible limit.
Referring to the recent argument that some of the latest action of the central bank's created liquidity crunch in the stock market, Ahmed said, "It is not right to blame the Bangladesh Bank for the stock market fall".
"It would have been far better had the central bank taken the steps before," said the economist who was the immediate past governor.
"We wanted a definite stance from the central bank on 'liquidity creation' in the bourses," said Mamun Rashid, a leading banker and economic analyst.
But he observed that the Bangladesh Bank's (BB) effort to 'raise a firewall' between banks and their merchant banking subsidiaries was a good one to protect the banking sector from the adverse affect of the very recent stock market debacle.
Mamun said the central bank "has to drive changes or even run supportive measures, in the context of the overall monetary policy".
He advised cautious regulatory measures as "no one has the right to break investors' confidence in the market by making decisions without any impact analysis".
Mamun said the market is going through a correction and we all should allow this to happen and avoid 'panic creation' by shifting decisions.
"There are still rooms for investment in good shares in the growth sectors and in shares with better price earning ratio" he said.
He also saw positive signals from the institutional investors, including the foreign ones to invest in view of recent corrections.
Kazi Mahmood Sattar, Chairman of the Association of Bankers Bangladesh (ABB), said banks' involvement should be limited as per the rules and regulations.
He said it would be more damaging to the economy if the banks suffer the same crisis like the stock market.
Md Nurul Amin, Vice Chairman of ABB and Managing Director National Credit and Commerce Bank Limited also supported the central bank's role for limiting the banks exposure to protect the banking sector from the volatility of the stock market.
He said blaming the BB for the recent price fall of shares is wrong because the central bank only instructed the banks to follow the stipulated regulations.
Stock analyst Syed Mahbub Rashid also believed that pumping money from the banking sector would not bring about sustainable stability in the stock market.
He suggested restructuring the Securities and Exchange Commission (SEC), allowing merchant banks to fix the rate of margin loan within a wide ceiling and coordinated measures to restore investors' confidence.
Some eminent bankers, economists and stock analysts recommended Monday a limited exposure of banks to the country's stock market, reports BSS.
The recommendation came when some people were demanding banks' increased exposure to stock market to help restore of stability.
Sources in the Bangladesh Bank (BB) told the news agency that the governor already held separate meetings with the chief executives of the banks that have earned substantial amounts of profit by investing funds beyond the permissible limit under the Bank Company Act.
According to the sources, the aggregate profit earned by some banks from stock market stood at Tk 20 billion. The Act limits a bank's investment in capital market to a maximum of 10 per cent of its total liabilities.
The governor at the meeting was learnt to have advised the respecting banks to deposit the money with the central bank as their reserve, which would eventually help them increase their lending capacity.
"This is a good idea," said former BB governor Dr Saleh Uddin Ahmed.
He said the central bank could not take risk on depositors' money by allowing banks to invest in any risky venture like capital market beyond their permissible limit.
Referring to the recent argument that some of the latest action of the central bank's created liquidity crunch in the stock market, Ahmed said, "It is not right to blame the Bangladesh Bank for the stock market fall".
"It would have been far better had the central bank taken the steps before," said the economist who was the immediate past governor.
"We wanted a definite stance from the central bank on 'liquidity creation' in the bourses," said Mamun Rashid, a leading banker and economic analyst.
But he observed that the Bangladesh Bank's (BB) effort to 'raise a firewall' between banks and their merchant banking subsidiaries was a good one to protect the banking sector from the adverse affect of the very recent stock market debacle.
Mamun said the central bank "has to drive changes or even run supportive measures, in the context of the overall monetary policy".
He advised cautious regulatory measures as "no one has the right to break investors' confidence in the market by making decisions without any impact analysis".
Mamun said the market is going through a correction and we all should allow this to happen and avoid 'panic creation' by shifting decisions.
"There are still rooms for investment in good shares in the growth sectors and in shares with better price earning ratio" he said.
He also saw positive signals from the institutional investors, including the foreign ones to invest in view of recent corrections.
Kazi Mahmood Sattar, Chairman of the Association of Bankers Bangladesh (ABB), said banks' involvement should be limited as per the rules and regulations.
He said it would be more damaging to the economy if the banks suffer the same crisis like the stock market.
Md Nurul Amin, Vice Chairman of ABB and Managing Director National Credit and Commerce Bank Limited also supported the central bank's role for limiting the banks exposure to protect the banking sector from the volatility of the stock market.
He said blaming the BB for the recent price fall of shares is wrong because the central bank only instructed the banks to follow the stipulated regulations.
Stock analyst Syed Mahbub Rashid also believed that pumping money from the banking sector would not bring about sustainable stability in the stock market.
He suggested restructuring the Securities and Exchange Commission (SEC), allowing merchant banks to fix the rate of margin loan within a wide ceiling and coordinated measures to restore investors' confidence.
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