Special funds for capital mkt: Most PCBs still remain undecided

The central bank's special fund proposal for investment in the capital market has not seen much progress, as most of the private commercial banks (PCBs) are yet to make any concrete decision to that end.

The Bangladesh Bank (BB) issued a circular on February 10 last, allowing all the scheduled banks to create a Tk 2.0 billion (200 crore) special fund each for a period of five years for investment in the capital market.

The banks can form the funds on their own or do it with monetary support from the central bank.

According to officials concerned, some PCBs are yet to take any decision on availing such a funding facility from the BB and some are still weighing the proposal while few others are continually investing in the market in line with the existing scope.

When asked, the managing director of a PCB said they were yet to say 'yes' or 'no' about availing the fund facility.

"We are reviewing the proposal against the existing scope of investment in the capital market. I think others are also doing so," the managing director said.

The circular said the special fund will be allowed to be invested in equity shares, mutual funds, bonds or debentures, and special purpose funds maintaining the prescribed criteria.

The BB circular came in the wake of merchant bankers' request for a Tk 100 billion fund from the government to breathe new life into the moribund capital market.

Md. Jafar Sadeq, a chief financial officer at Shahjalal Islami Bank, said their bank still did not take any decision regarding availing such a fund facility. "We are reviewing the proposal."

According to the BB circular, the banks will not need to make any provision for a decrease in the market value of their investments.

Preferring anonymity, the managing director of another PCB said now they are not interested in seeking such a fund facility, as they have more scope for investment under their existing capital market exposure limit.

A senior official of a leading brokerage firm said they sat twice with the board of their bank directors to discuss whether they should apply to the central bank for the fund.

"But no positive response has been made in this regard," he said.

According to the BB circular, a bank can create such a special fund with its own resources or with any fund received from the BB through the repo or re-financing mechanism.

A senior official at the Rupali Bank said they already formed a Tk 850 million (85 crore) fund with their own resources in line with the BB circular.

"The fund size will gradually reach Tk 2.0 billion," added the official.

But the Sonali Bank formed a Tk 2.0 billion fund with its own resources.

Managing Director of Agrani Bank Mohammad Shams-Ul Islam said presently they are continuing to invest with their own fund. "Now we do not need to avail such a fund facility from the central bank." Officials at some brokerage firms said the boards of many PCBs cold-shouldered the proposal for availing the funding support from the central bank.

"The proposal for availing the fund facility was placed in the board meeting. But the board is now prioritizing other jobs of the bank," said an official of a leading brokerage firm.

He said the representatives of Bangladesh Merchant Bankers Association (BMBA) are trying to sit with the BB officials concerned.

"It will be better if the central bank makes the circular compulsory for the banks," the official said.

But when asked, a senior official of the central bank said they cannot make the circular compulsory for all.

"The government paved the way for creating the funds as the stockbrokers and merchant banks were thirsty for that. Now, it's up to the banks whether they will receive the funds or not," the BB official told the FE.

He said some state-owned commercial banks (SoCBs) have started the process of availing monetary support from the BB for forming their respective special funds.

"We have so far received only one proposal from a PCB. The banks can also create funds with their own resources. In that case, they will just give us information," the BB official added.

The City Bank Limited, the only PCB that got the BB support, received Tk 500 million through the repo facility for forming the special fund, the BB official said.

When contacted, BMBA President Md. Sayadur Rahman said the proposals for receiving funds from the central bank are yet to get priority, as the PCBs are now busy preparing their financial statements for the year ended on December 31, 2019.

"The delay in dealing with the proposal does not mean the banks are unwilling to receive the funds. It will take some time to see the visible impact of the funding facility offered by the central bank," Mr. Rahman said.