BB extends banks' special fund for stock investment until Dec 2026
The special fund, aimed at enhancing liquidity in the capital market, was introduced in 2020 during the pandemic, allowing each bank to create a Tk200 crore fund with a five-year tenure. The tenure of the fund expired in February this year
Considering the current state of the capital market and aiming to ensure overall financial sector stability, the Bangladesh Bank has extended the tenure of banks' special funds for investing in stocks by around 22 months until 31 December 2026.
According to a central bank circular issued today (8 April), banks that created and invested in these special funds must now gradually reduce their investments within the newly extended timeframe.
The extension decision was made following consultations with capital market stakeholders, banks, and based on the central bank's own analysis.
The special fund initiative was introduced in 2020 during the pandemic to enhance liquidity in the capital market. Under this scheme, each bank was allowed to create a Tk200 crore fund with a five-year tenure, which expired in February this year.
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To make the offer lucrative, the central bank also excluded the investment from the banks' capital market exposure calculation.
The 2020 circular from the central bank mandated that banks and their subsidiaries could only invest in stocks that have paid at least a 10% stock or cash dividend (or both) in the past three consecutive years and have at least 30% sponsor/director shareholding.
As per the circular, banks are now required to submit a specific action plan -approved by their respective boards of directors – to the Bangladesh Bank within 30 days of the circular's issuance. The plan must outline how they will gradually reduce their investment exposure in the special fund.
Timely and proper implementation of this plan is mandatory, the central bank emphasised.
After the extended tenure ends on 31 December 2026, any remaining investments under the fund will be treated as part of the banks' capital market investment portfolio, both on a solo and consolidated basis, in accordance with Section 26K of the Bank Companies Act 1991.
Saiful Islam, president of the DSE Brokers Association (DBA), told The Business Standard, "We are very grateful to the Bangladesh Bank for extending the tenure of the fund at a time when the market is under pressure. This decision will provide much-needed liquidity support to the market."
Earlier, the Bangladesh Securities and Exchange Commission (BSEC) had requested the Bangladesh Bank to extend the tenure of the commercial banks' special Tk200 crore capital market investment fund for another five years until February 2030.
Additionally, the BSEC has requested to increase the fund size to Tk300 crore for each scheduled bank.
BSEC Chairman Khondoker Rashed Maqsood made the requests during a meeting with the central bank Governor Ahsan H Mansur on 27 November.
According to BSEC, more than 20 banks had over Tk1,600 crore capital market investments under the special arrangement by mid-2024.
On 28 January, DBA urged the Bangladesh Bank to extend the tenure of the special investment fund by commercial banks for capital market liquidity support by five years.
In a letter to the central bank, DBA President Saiful Islam said, amid the current market context, all portfolio investments are incurring losses ranging from 40% to 60%.
"Closing such funds at this moment would result in substantial losses in portfolio accounts and lead to institutional sell-offs amounting to over Tk1,600 crore," he wrote.
"This could be detrimental to the capital market, especially considering the current extremely low confidence levels among investors and stakeholders," he added.
Saiful further said the capital market is navigating through a challenging period. "Since the last quarter of 2021, our retail-driven market has experienced a prolonged downturn, resulting in a significant decline in equity market capitalisation."
He said this downturn has impacted over two million investors, including institutional investors such as banks, financial institutions, insurance companies, and mutual funds, as well as market intermediaries such as stockbrokers and other stakeholders.
