Siddique Islam and Asaduzzaman Pallab
The central bank has extended the time-frame for adjustment of 'single borrower exposure limit' by the commercial banks for financing the operations of their subsidiaries -- brokerage houses and merchant banks -- by a maximum period of six months.
Under the amended provisions, the banks will have to adjust the excess amount of their loans over the single borrower exposure limits for their respective subsidiaries by December 31, instead of the earlier set-period between June 30 and August 31 this year.
"We've taken the latest move considering the overall situation in the country's stock market and the banks' fund position," an executive director of the Bangladesh Bank (BB) told the FE Thursday.
He also said the central bank would expect that the move would help stabilise the stock market.
In this connection, the central bank issued a circular Thursday and asked the chief executives of all scheduled banks to follow the latest instructions for adjustment of their excess loans over their single borrower exposure limits concerning their subsidiaries.
"The funds, which were invested by the parent companies in excess of the equity to their subsidiaries, will form a part of their loan portfolios," the BB official said while explaining the excess amount of loans.
In some cases, such loans have exceeded their single borrower exposure limit, he added.
Capital market operators said institutional investment fell drastically in the last two months as merchant banks and brokerages houses were under a tremendous pressure to comply with single borrower exposure limit.
Clients did not get any margin loan from their brokerage houses or merchant banks during the period when the earlier directive of the central bank about 'single borrower exposure limit' was in force. In some cases there are trigger-sales (forced sales) of clients' share holding to help avert any further losses, they added.
"The BB's latest move will help to stop any trigger-sale of shares by the subsidiaries and this will help address the liquidity problems in the capital market," Director of the Dhaka Stock Exchange (DSE) Ahmed Rashid Lali told the FE.
He said the liquidity problem is the main issue right now in the market.
"The BB should consider raise their single borrower exposure limit, in case of own subsidiaries, to 25 per cent from the existing 15 per cent limit," he suggested.
Currently, 27 commercial banks, out of a total of 47, are running 35 brokerage houses and merchant banks as their subsidiary companies.
"Most commercial banks have already complied with their single borrower exposure limits for financing by their subsidiaries," the BB official said, adding that at least eight banks are yet to adjust their excess amount of loans over their single borrower exposure limit.
On November 01 last, the central bank asked the commercial banks to finance their subsidiaries, considering them as belonging to the same group, to minimise credit risk.
The BB had taken the move against the backdrop of violations of the existing provision about single borrower exposure limit by some of the banks through financing operations of their subsidiaries, considering them as separate entities.
Under the existing provisions, the total outstanding financing facilities by any bank to any single person or enterprise or organisation of a group are not to exceed 35 per cent of the bank's total capital at any point of time, subject to the condition that the maximum outstanding against fund-based financing facilities (funded facilities) do not exceed 15 per cent of its total capital base.
However, the single borrower exposure limit should remain unchanged in the export sector at the existing 50 per cent of a bank's total capital. But funded facilities, in case of export credit, are not also to exceed 15 per cent of a bank's total capital.
On June 14 last year, the central bank took measures to augment financing facilities in the power sector through withdrawal of the single borrower exposure limit only in the thrust sector.
Under the provisions, the single borrower exposure limit will not be applicable in case of financing power generation, distribution and transmission.
The central bank has extended the time-frame for adjustment of 'single borrower exposure limit' by the commercial banks for financing the operations of their subsidiaries -- brokerage houses and merchant banks -- by a maximum period of six months.
Under the amended provisions, the banks will have to adjust the excess amount of their loans over the single borrower exposure limits for their respective subsidiaries by December 31, instead of the earlier set-period between June 30 and August 31 this year.
"We've taken the latest move considering the overall situation in the country's stock market and the banks' fund position," an executive director of the Bangladesh Bank (BB) told the FE Thursday.
He also said the central bank would expect that the move would help stabilise the stock market.
In this connection, the central bank issued a circular Thursday and asked the chief executives of all scheduled banks to follow the latest instructions for adjustment of their excess loans over their single borrower exposure limits concerning their subsidiaries.
"The funds, which were invested by the parent companies in excess of the equity to their subsidiaries, will form a part of their loan portfolios," the BB official said while explaining the excess amount of loans.
In some cases, such loans have exceeded their single borrower exposure limit, he added.
Capital market operators said institutional investment fell drastically in the last two months as merchant banks and brokerages houses were under a tremendous pressure to comply with single borrower exposure limit.
Clients did not get any margin loan from their brokerage houses or merchant banks during the period when the earlier directive of the central bank about 'single borrower exposure limit' was in force. In some cases there are trigger-sales (forced sales) of clients' share holding to help avert any further losses, they added.
"The BB's latest move will help to stop any trigger-sale of shares by the subsidiaries and this will help address the liquidity problems in the capital market," Director of the Dhaka Stock Exchange (DSE) Ahmed Rashid Lali told the FE.
He said the liquidity problem is the main issue right now in the market.
"The BB should consider raise their single borrower exposure limit, in case of own subsidiaries, to 25 per cent from the existing 15 per cent limit," he suggested.
Currently, 27 commercial banks, out of a total of 47, are running 35 brokerage houses and merchant banks as their subsidiary companies.
"Most commercial banks have already complied with their single borrower exposure limits for financing by their subsidiaries," the BB official said, adding that at least eight banks are yet to adjust their excess amount of loans over their single borrower exposure limit.
On November 01 last, the central bank asked the commercial banks to finance their subsidiaries, considering them as belonging to the same group, to minimise credit risk.
The BB had taken the move against the backdrop of violations of the existing provision about single borrower exposure limit by some of the banks through financing operations of their subsidiaries, considering them as separate entities.
Under the existing provisions, the total outstanding financing facilities by any bank to any single person or enterprise or organisation of a group are not to exceed 35 per cent of the bank's total capital at any point of time, subject to the condition that the maximum outstanding against fund-based financing facilities (funded facilities) do not exceed 15 per cent of its total capital base.
However, the single borrower exposure limit should remain unchanged in the export sector at the existing 50 per cent of a bank's total capital. But funded facilities, in case of export credit, are not also to exceed 15 per cent of a bank's total capital.
On June 14 last year, the central bank took measures to augment financing facilities in the power sector through withdrawal of the single borrower exposure limit only in the thrust sector.
Under the provisions, the single borrower exposure limit will not be applicable in case of financing power generation, distribution and transmission.
No comments:
Post a Comment