Bangladesh Merchant Bankers Association (BMBA) has urged the finance minister to exclude some components, including sponsors' investments in mutual funds (MFs), from the banks' exposure to the capital market.
It made the request for ensuring an environment conducive to gradual development of the capital market, according to a proposal submitted to Finance Minister AMA Muhith last week.
The BMBA said the 'long-term or strategic' investments needed to be excluded while calculating the exposure as these investments were not intended for frequent trading.
"Non-convertible preference shares and non-listed securities also need to be excluded from the capital market exposure as it will never influence the capital market volatility," it said in a letter to the minister.
According to the letter, the MFs are passive investments where investors themselves are not involved in investment decision making and such fund portfolios are mostly of long-term nature than frequent trading.
On the other hand, the sponsors of the MFs need to hold 10 per cent of the investment until liquidation of the fund.
"So, considering the fact, the sponsors' portions in MFs need to be excluded from the banks' capital exposure," said the BMBA proposal.
As per the Banking Act 1991, it said, reporting requirement is on solo basis, but the central bank has introduced consolidated calculation, which is of dual effect/double counting in the market exposure.
"This kind of restrictive measure creates panic situation in the market and may hinder the potentials and prospects of the capital market as a whole," the BMBA said.
It also said that this kind of practice needed to be stopped as such requirements and reporting practice would further squeeze the market and that the investors would lose their interest.
The BMBA said some organisations have invested on strategic purpose and were holding positions in the board and their exposure increased with rising the market price of MF units.
"On the other hand, in compliance with the securities rules, they are unable to sell shares to reduce exposure," the BMBA said, terming the situation complicated.
In its letter, the BMBA said that the capital market exposure of some banks and financial institutions increased without fresh investments following the upward trend of the market price as the exposure is calculated on the basis of market price.
"If the banks need to go for selling off their excess exposure, this will create unnecessary selling pressure on the market," said the BMBA.
The association requested the finance minister to consider their proposal to facilitate the growth of the capital market by its own strength and prospect.