FE Report (January 11, 2011)
Bangladesh Bank (BB) decided Monday to withdraw the deadline set for the commercial banks to adjust loan that have been diverted from industrial sector to capital market, said BB Deputy Governor Nazrul Huda.
The commercial banks would now be able to adjust such loans whenever they feel comfortable, he said.
The central bank would not chase after them for adjusting such loan and assured them of considering such issues on case to case basis, said the BB top official.
In an unprecedented decision Monday the central bank also asked the commercial banks not to sell the shares that they are holding.
The BB also decided to relax the provision for compliance of single borrower exposure limit of 15 per cent.
It also decided to consider over investments of the commercial banks, that have already crossed their limits investing into the stock markets, on case to case basis.
The Bank Company Act stipulates that a bank cannot invest in capital market more than 10 per cent of its total liabilities. Liabilities comprise total deposit and capital.
The BB's decisions followed an important meeting with the Association of Banks, Bangladesh (ABB) to find out ways for stablising the stock markets.
The BB earlier had instructed the commercial banks to adjust the diverted loan portfolios by January 15 next.
The central bank also stuck to maintaining single borrower exposure limit and had asked the commercial banks to cut down their stock market investments by selling shares, which led to stock market fall from early this year and record steepest fall of the country's history in past two consecutive trading sessions.
Briefing the newsmen the central bank ruled out the Securities and Exchange Commission's (SEC) claim that there is a shortage of money in the market.
"We don't want to indulge in blame game but some quarters are spreading wrong information about the central bank in the market," central bank deputy governor Nazrul Huda told the newsmen.
He made the observation when his attention was drawn to SEC chief's comments that he made on the same day that the market is experiencing 'liquidity crunch'.
"Capital market has adequate liquidity and the BB has injected three times more money into the market than the amount it withdraws as CRR," said Nazrul Huda.
The central bank had increased cash reserve requirement (CRR) by 0.5 percentage point effective from December 15 last and due to that it mopped up about Tk 20 billion from the market.
He informed the media that the central bank would not be harsh with the banks which have exceeded the single borrower exposure limit.
According to regulation, a bank cannot give loan which is over 15 per cent of its capital.
"Some banks have violated the rules but we will handle it in a relaxed manner," he said.
"We also asked the banks to provide information about their exposure in capital market and they can adjust the exposure in a suitable time if they cross the legal limit," he said.
Deputy governor Ziaul Hasan Siddique said the commercial banks have Tk 9.14 billion excess reserve with the central bank, which are completely idle money.
Earlier, Association of Bankers, Bangladesh president Mahmood Sattar, chairman of Primary Dealers' Association Anis A Khan and Sonali Bank managing director Humayun Kabir held a meeting with the governor and three deputy governors.
"The institutional investors will start their operations in full swing as market has enough liquidity," Mr Mahmood told newsmen after the meeting.
Mr Anis Khan informed that his bank bought shares worth Tk 1 billion Sunday.
Humayun Kabir said it is good time to buy as the market is declining.
Meanwhile, some banks are facing liquidity crunch primarily due to mismatch between their credit and deposit growths, banking sources said.
Against this backdrop they are collecting deposits, especially short term funds from market at higher interest rates to cope with their liquidity shortage, the sources said.
The banks' liquidity crisis was the result of opening increased number of letters of credit (L/Cs) for imports and adjustment of their deferred payments and compliance of other requirements of the BB, they added.
Monday's relaxation of the single borrower exposure limit would help such banks come out of the crisis, bankers viewed.
Bangladesh Bank (BB) decided Monday to withdraw the deadline set for the commercial banks to adjust loan that have been diverted from industrial sector to capital market, said BB Deputy Governor Nazrul Huda.
The commercial banks would now be able to adjust such loans whenever they feel comfortable, he said.
The central bank would not chase after them for adjusting such loan and assured them of considering such issues on case to case basis, said the BB top official.
In an unprecedented decision Monday the central bank also asked the commercial banks not to sell the shares that they are holding.
The BB also decided to relax the provision for compliance of single borrower exposure limit of 15 per cent.
It also decided to consider over investments of the commercial banks, that have already crossed their limits investing into the stock markets, on case to case basis.
The Bank Company Act stipulates that a bank cannot invest in capital market more than 10 per cent of its total liabilities. Liabilities comprise total deposit and capital.
The BB's decisions followed an important meeting with the Association of Banks, Bangladesh (ABB) to find out ways for stablising the stock markets.
The BB earlier had instructed the commercial banks to adjust the diverted loan portfolios by January 15 next.
The central bank also stuck to maintaining single borrower exposure limit and had asked the commercial banks to cut down their stock market investments by selling shares, which led to stock market fall from early this year and record steepest fall of the country's history in past two consecutive trading sessions.
Briefing the newsmen the central bank ruled out the Securities and Exchange Commission's (SEC) claim that there is a shortage of money in the market.
"We don't want to indulge in blame game but some quarters are spreading wrong information about the central bank in the market," central bank deputy governor Nazrul Huda told the newsmen.
He made the observation when his attention was drawn to SEC chief's comments that he made on the same day that the market is experiencing 'liquidity crunch'.
"Capital market has adequate liquidity and the BB has injected three times more money into the market than the amount it withdraws as CRR," said Nazrul Huda.
The central bank had increased cash reserve requirement (CRR) by 0.5 percentage point effective from December 15 last and due to that it mopped up about Tk 20 billion from the market.
He informed the media that the central bank would not be harsh with the banks which have exceeded the single borrower exposure limit.
According to regulation, a bank cannot give loan which is over 15 per cent of its capital.
"Some banks have violated the rules but we will handle it in a relaxed manner," he said.
"We also asked the banks to provide information about their exposure in capital market and they can adjust the exposure in a suitable time if they cross the legal limit," he said.
Deputy governor Ziaul Hasan Siddique said the commercial banks have Tk 9.14 billion excess reserve with the central bank, which are completely idle money.
Earlier, Association of Bankers, Bangladesh president Mahmood Sattar, chairman of Primary Dealers' Association Anis A Khan and Sonali Bank managing director Humayun Kabir held a meeting with the governor and three deputy governors.
"The institutional investors will start their operations in full swing as market has enough liquidity," Mr Mahmood told newsmen after the meeting.
Mr Anis Khan informed that his bank bought shares worth Tk 1 billion Sunday.
Humayun Kabir said it is good time to buy as the market is declining.
Meanwhile, some banks are facing liquidity crunch primarily due to mismatch between their credit and deposit growths, banking sources said.
Against this backdrop they are collecting deposits, especially short term funds from market at higher interest rates to cope with their liquidity shortage, the sources said.
The banks' liquidity crisis was the result of opening increased number of letters of credit (L/Cs) for imports and adjustment of their deferred payments and compliance of other requirements of the BB, they added.
Monday's relaxation of the single borrower exposure limit would help such banks come out of the crisis, bankers viewed.
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