Flash Report /
Bangladesh

Bangladesh Banks’ capital market exposure will be calculated on cost basis

  • The central bank has changed the calculation method of banks’ capital market exposure to cost based method.

  • Under the market price method, banks used to sell off holdings during a bullish trend to adjust capital market exposure.

  • Under the new regulation, banks are not required to offload to adjust the exposure limit.

Shopnil Paul
Shopnil Paul

Research Associate

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IDLC Securities
7 August 2022
Published byIDLC Securities

Bangladesh’s central bank, in a circular published on August 04, has changed the calculation method of banks’ capital market exposure from market value based method to cost based method.

Please note that, the capital market regulator, BSEC, has long been soliciting to the central bank to make the change. The central bank has finally proceeded with the proposals after getting a favourable opinion from the govt. (Ministry of Finance).

Under the market price basis method, the banks used to sell off their holdings during a bullish trend to bring the capital market exposure within the regulatory limit. Under the new regulation, banks are not required to offload to adjust the exposure limit.

On solo basis, the scheduled banks’ capital market exposure is 25% of the sum of paid up capital, balance in share premium account, statutory reserve and retained earnings as stated in the latest audited financial statement. On a consolidated basis, the limit is 50%.

Banks’ consolidated capital market exposure includes the following key items –

  • Cost value of all types of shares, debentures, corporate bonds, mutual fund units and any other capital market leaning securities held by the bank and its subsidiaries,

  • Margin loan (outstanding) provided to the customers by the subsidiary or subsidiaries of the bank,

  • Subscription to any fund intended to invest in the capital market by the bank and its subsidiaries,

  • Loan extended to other capital market intermediaries,

  • Bridge loans provided to companies by the subsidiary or subsidiaries of the bank against expected equity flows/issues,

Please note that banks’ capital market exposure does not include the investment in subordinate debt instruments – considerable as TIER-2 capital – issued by other scheduled banks (e.g., the BASEL-III compliant perpetual bonds).