Bangladesh Bank (BB) extended the time- frame by one year for adjustment of “single borrower exposure limit” by the commercial banks for financing the operations of their brokerage houses and merchant banks.
BB’s initiative came as a year-end initiative to revitalise the share market by allowing banks maintain their higher stock market exposure for one more year, which will help maintain a steady demand on the market, reports BSS.
The central bank in a circular on Monday said that subsidiaries of banks created for merchant banking and brokerage operations would adjust their “single borrower exposure limit” by December 31, 2014, instead of December 31, 2013.
“This decision has been taken after considering the overall situation of the country,” the BB said.
At present, banks and financial institutions are allowed to lend no more than 15 per cent of their total advances in the share market through their subsidiaries, but most of merchant banks and brokerage houses exceeded the limit during the recent surge in stock market.
Earlier, BB extended the time-limit from for a few times to adjust the loan amount of their subsidiaries, but the merchant banks and brokerage houses could not follow the directive mainly because of the falling stocks, said a merchant banker.
A BB official said the central bank allowed more time so the merchant banks and brokerage houses would adjust the additional loan amount without opting for forced-sale of shares, which would make market more volatile.
Currently, 30 commercial banks are running 35 brokerage houses and merchant banks as their subsidiary companies.