The Bangladesh Securities and Exchange Commission (BSEC) recently urged Bangladesh Bank for the second time to exclude fixed income securities – bonds, Sukuks and asset-backed securities – when calculating banks’ exposure to the equity market. capital.
BSEC spokesman and executive director Rezaul Karim said fixed income securities are less volatile than equities and have a lower scope of capital gain or loss. This is why the commission asked the central bank to exclude them when calculating the exposure.
According to the President of Bangladesh Merchant Bankers Association, Md Sayadur Rahman, the investment capacity of banks is decreasing due to the listing of bonds in the capital market.
“Since they are not volatile, all types of bonds should be kept out of the exposure calculation,” he added.
Ershad Hossain, Managing Director of City Bank Capital Resources Limited, said that Bangladesh Bank should rationally review the inclusion and exclusion of different asset classes, namely shares, quasi-shares and debt securities in the capital market exposure, instead of considering them on the basis of the capital market quotation.
“My logic is that if you list a bond, it will create an opportunity for bondholders to exit by selling their shares, rather than waiting for it to mature,” he said.
In September this year, the Bangladesh Bank informed the securities regulator that banks had more opportunities to invest in the capital market, especially in bonds.
Last week, treasury bills, which are outside the capital market exposure limit, were trialed on exchanges.
On the other hand, perpetual bonds are issued to raise AT1 capital to comply with central bank Basel III guidelines. These bonds will include exposure when listed on the stock exchange.
Six perpetual bonds are already listed on exchanges which are included in the capital market exposure.
In August this year, the Bangladesh Bank allowed banks and non-banking financial institutions (NBFIs) to calculate their capital market exposure based on the cost of investments, instead of the market price of their securities held.
After that, banks and NBFIs don’t need to sell stocks to stay within their post-appreciation exposure limit.
The central bank responded to repeated requests from the securities regulator and the investment industry because they believed the measure would help stabilize the capital market.