Banks are going to invest an additional Tk 1,350 crore in the stock market by utilising Bangladesh Bank’s incentive, a development that will likely to boost both liquidity flow and investor confidence.
The highest investment commitment came from United Commercial Bank followed by Rupali, Pubali, and Janata.
As of December 10, lenders had invested Tk 700 crore in the market but the additional investment will likely to flow into the market in the coming months, according to central bank data.
The move comes at a time when local banks are facing excess liquidity due a lack of demand for loans because of a possible second wave of the pandemic.
The Covid-19 outbreak is also affecting investment decisions, because of which prices of many stocks are staying relatively low.
“Profitability in the banking sector is in danger due to the ongoing pandemic. So, we are searching for every possible way to utilise our funds,” he added.
According to the official, local entrepreneurs are struggling amid the Covid-19 outbreak, which may turn many good borrowers into defaulters.
As per Bangladesh Bank data, lenders have decided to invest in the stock market mainly after the outbreak began in early March, several weeks after the central bank had offered an incentive in the form of a Tk 200 crore fund.
On February 10, the banking regulator rolled out a package that allows banks to set up a Tk 200 crore fund by taking it from Bangladesh Bank through a repurchase agreement against treasury bills and bonds owned by them.
But as of March 24, lenders had invested only Tk 30 crore in the stock market under the initiative.
The banks will have to pay 5 per cent interest for the fund and the credit tenure will be until February 2025.
Prof Abu Ahmed, a stock market analyst and former economics professor at the University of Dhaka, said the amount of funds made available is not small from the perspective of liquidity in the market.
“It will boost investor confidence,” he added.
However, the banks should invest for the long-run and in fundamental stocks because many of them are still lucrative.
“Investment related officials should be efficient in their tasks so that banks don’t swallow any loss from the market, then the lenders will be encouraged to invest further,” Ahmed said.
“This is good news for the market, which will benefit from their investment,” said Rasel Mahmud, a stock investor.
But if the banks do not make sudden exits after earning profits, then the general investors would surely get confidence to invest more, he added.
A senior Bangladesh Bank official, preferring anonymity, said that although they have allowed banks to invest to a greater extent, they should remain cautious about the fund.
“We don’t want to see a repeat of 2010,” the official said.
In 2010, banks had huge investments in the stock market, causing a boon in the bourses’ index.
But on the other hand, when the bubble burst, a number of banks and non-banking financial institutions incurred considerable losses.
So, banks should invest for the long-run so that investors gain confidence and help the lenders earn back their money, he added.
The country’s lenders are even being cautious right now so they invest in blue-chip stocks to avoid any erosion of their fund, said Khairul Bashar Abu Taher Mohammed, CEO of MTB Capital.
“Banks have begun investing their funds into the market, including treasury bonds, as their lending scopes are limited amid the Covid-19 fallout,” he said.
Their investments are fuelling investor confidence, trade and index movement of the market, the merchant banker added.