Cash crunch bars banks from stock investment: bankers

Commercial banks yesterday said they will not be able to make enough investment in the stockmarket until their liquidity crisis is eased first.
They also proposed a cut in cash reserve ratio (CRR) and statutory liquidity ratio (SLR), and providing tax incentives for them for their investment in the stockmarket.
Top executives of the commercial banks, however, said despite the liquidity crisis, the banks as institutional investors are continuously investing in the market.
“We have stopped selling shares and we are on the buying side. But we cannot invest as much as we want or in line with the market demand due to the liquidity crisis,” said K Mahmud Sattar, president of Association of Bankers, Bangladesh (ABB), a platform of the top executives of the commercial banks.
“Almost every bank is suffering from the liquidity crisis. They are borrowing from the call money market to meet their cash demand and so they cannot make big investment even if they want to,” said Sattar at a press briefing after a meeting between the association and Securities and Exchange Commission.
The stockmarket regulator sat with the ABB leaders and members in the wake of a continuous fall in indices that however rose yesterday after a three-day slump.
Sattar said the bankers have placed some suggestions before the SEC so that the banks' investment in the stockmarket can be increased.
“We urged the commission to take steps to persuade the government into lowering the CRR and SLR,” he said.
“The commission assured us of conveying our recommendations to the government,” said Sattar, also chief executive officer of The City Bank.
He also said foreign investment should be encouraged more in the stockmarket. “It will bring more fresh funds into the market,” he said.
He said the current market situation is good for investment. “If the banks invest now, they may not get return in short-term, but would get good return in the long run,” he said.
The bankers at the meeting identified a lack of confidence, apart from the liquidity crisis, as the major reason behind the current volatility in the market.
The ABB also proposed redefining the banks' investment exposure limit that is presently counted on the basis of market price. But the exposure should be computed on the basis of cost price, they said.