Bangladesh Bank loosens the leash on banks’ stock exposure
12:00 AM, May 17, 2019 / LAST MODIFIED: 12:06 AM, May 17, 2019

BB loosens the leash on banks’ stock exposure

BB says banks’ investment in non-listed securities would not be counted as their capital market exposure. BB also created a room for banks to invest in alternative investment funds and special purpose vehicles.

The central bank has widened banks’ scope to invest in the stock market and infrastructural fund as the government looks to put a pause on the longer than usual bear run.

The DSEX, the benchmark index of the premier bourse, lost 774.55 points, or 13.07 percent, in the last three months.

In a notice yesterday, the Bangladesh Bank informed that banks’ investment in non-listed securities -- such as equity, non-convertible cumulative preference share, non-convertible bond, debenture and open-ended mutual funds -- would not be counted as their capital market exposure.

In a separate notice, the BB also created a room for banks to invest in alternative investment funds, special purpose vehicles (SPV), or any other similar project-specific fund.

SPV is a “bankruptcy-remote entity” since its operations are limited to the acquisition and financing of specific assets as a method of isolating risk, the notice said.

The decision was taken to facilitate financing of infrastructure projects through bonds instead of bank loans.

In case of public infrastructure projects pertaining to power and fuel, roads and bridges, communication, tourism and digital sector, banks would be allowed to invest the lower of the two: Tk 700 crore or the single borrower exposure limit.

If the projects are taken through public-private partnership (PPP), banks would be allowed to invest the lower of the two: Tk 600 crore or the single borrower exposure limit.

It will be the same for private sector projects on power, fuel, tourism and digital infrastructure.

The BB advised following some risk management system in case of SPV investment.

The fund’s trustee and the invested bond and debenture should be approved by the Bangladesh Securities and Exchange Commission.

Banks can purchase a non-listed company’s equity instrument worth up to 10 percent of the company’s paid-up capital.

In case of private and PPP projects, the bond or debenture issuer should maintain a sinking fund that would be at least 10 percent of the issue.

Every year, the issuer should keep at least 3 percent of its yearly revenue in the fund.

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