Seven banks fined for flouting stockmarket rules
The central bank has fined seven banks for violating stockmarket rules by way of miss-reporting on share investment and over-exposure.
The seven banks were penalised over Tk 15 lakh in total, confirmed a senior executive of the Bangladesh Bank.
The central bank took the decision last week based on the banks' stock exposure of August, he said.
Last month, the BB carried out investigations over the banks' stockmarket activities following the recent upward trends in share prices of the banking sector.
Market capitalisation of the listed 30 banks rose 57 percent to Tk 76,146 crore as of last Thursday from Tk 48,406 crore in December last year, Dhaka Stock Exchange data showed.
The central bank is now investigating the stock activities of another eight banks, while five more banks are also being treated with suspicion and they will come under the probe very soon, according to the central bank's decision.
The BB probe found that the banks invested in the stocks by way of providing loans to their subsidiaries but did not report to the regulator. Some banks invested in stocks exceeding their exposure limit and some invested further despite having overexposure already.
The overexposure of banks was one of the leading causes for market debacle in 2010 when lenders were allowed to invest 10 percent of their liabilities. Later, the Banking Company Act was amended curbing banks' exposure to stocks, by tagging the allowable investment limit to capital instead of liabilities.
Banks are now allowed to invest 25 percent of their capital in stocks, according to the Banking Company Act 2013.
The average exposure of the banking sector remained at 20 percent of their capital as of August, according to the central bank data. The BB observed that the price indices of the stockmarket are moving based on bank stocks as huge number of shares change hands.
Bank shares have been dominating the turnover chart for several months.
Though the direct exposure to the stockmarket remained within the permissible limit, banks are increasing their indirect investment through loans as the banking sector is awash with excess liquidity, said a senior executive of a private bank.
Total loan portfolio to the stock-market stood at Tk 7,600 crore at the end of 2016, according to BB data. Of the amount, 53 percent came from banks and the rest from non-bank financial institutions. Banks invested Tk 2,130 crore through merchant banks and Tk 1,900 crore through other instruments last year.
Non-banks lent Tk 2,330 crore through merchant banks and Tk 1,270 crore as margin loans, according to BB data.