The central bank has allowed all scheduled banks to create a special fund worth Tk 2.0 billion each of five-year tenure, only for investment in the capital market, officials said.
Under the fresh arrangement, the banks may form the special fund with their own resources or with fund received from the Bangladesh Bank (BB) through repo or re-financing mechanism, according to a notification, issued by the BB on Sunday.
Such investment will not be included in the banks' capital market exposures, both on solo and consolidated basis, until February 2025, it added.
Besides, the banks will be eligible for suspension of marking to market valuation for such investment during the tenure. It means that the banks will not have to make any provision for decrease in market value of their investment.
The banks will be eligible to get repo (repurchase agreement) facilities against treasury bills (T-bills) and treasury bonds at 5.0 per cent interest rate instead of the existing 6.0 per cent.
The interested banks will receive such low-cost fund through special repo facility without holding any auction, the BB officials said.
They also said the special fund will be allowed to invest in equity shares, mutual funds, bonds or debentures, and special purpose funds by maintaining the prescribed criteria.
Under the mechanism, the banks may lend money to share market intermediaries by charging maximum 7.0 per cent interest rate, according to the notification.
Such loan will not be included in the ADR (advance-deposit ratio) calculation of the banks concerned.
The lending will be of continuous and revolving nature during the five years tenure, the officials explained.
The banks have been asked to submit report on the special fund in prescribed format to the central bank on a quarterly basis.
The BB's latest move came against the backdrop of a falling trend in the share market in the recent months despite the government's various measures.
"It's a long-term comprehensive plan to support sustainable development of the country's capital market," a BB official told the FE while explaining the main objective of the notification.
Some criteria have been set for the fund to mitigate risk through diversifying investment portfolios, the central banker explained.
On September 22 last year, the BB offered repo facility to the banks at 6.0 per cent interest rate for investment in the capital market.
The facility drew very little attention, as only the City Bank Limited took Tk 500 million under the facility, although the banks had scope of borrowing around Tk 30 billion from the central bank.
Talking to the FE, Khairul Bashar Abu Taher Mohammed, chief executive officer of MTB Capital, said it's middle-term low-cost fund for capital market development. But the banks will act in accordance with their own investment policy.
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