BB moves to regulate banks’ non-listed investment

The Bangladesh Bank yesterday issued a guideline to regulate banks’ investment in non-listed securities with a view to keeping their risks at a tolerable level. 

Non-listed securities include non-listed equity share, non-convertible bond, debenture, open-ended mutual fund, and non-convertible cumulative preference share.

The move from the central bank came after it separated banks’ investment in the non-listed securities from their exposure to the stock market.

In case of non-listed equity share, banks’ investment must be less than 5 percent of their paid-up capital, share premium, statutory reserve, and retained earnings. The investment of a bank must be lower than 10 percent of the non-listed company’s paid-up capital too. The price of shares of non-listed companies, including premium should not be higher than 110 percent of its net asset value.

In case of investment in preference shares, it should be non-convertible cumulative and would be included in the banks’ single borrower exposure limit.

The tenure of preference shares should not be higher than five years and its interest or cash dividend should be fixed.

If the interest of dividend remains unpaid in one year, then 25 percent of principal and interest should be maintained as provision. The provision should be extra 25 percent if it remains unpaid in the second year as well. If it lingers to the third year, then 100 percent provisioning must be maintained.

In case of investment in non-listed mutual funds or open-ended mutual funds, banks’ investment must not be higher than 5 percent of banks’ paid-up capital, share premium, statutory reserve and retained earnings.

At the same time, the investment should not be higher than 15 percent of funds’ total size.

Banks must submit quarterly statements on their investment in the non-listed securities to the central bank, as per the guideline.