Investment banking accounts for less than 5% of DSE market capitalization
As of March 10, the total capital market exposure of the banking sector stood at around Tk 23,000 crore
Representative image. Photo: Collected
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Representative image. Photo: Collected
The much-discussed exposure of the banking sector in the capital market stands at around Tk 23,000 crore, which is not even 5% of the total market capitalization of the Dhaka Stock Exchange (DSE) of more than 5.31 crore Tk, according to a compilation by the securities regulator.
Out of the total exposure, the equity investment of the lenders amounts to less than Tk 15,000 crore while the remaining investment comes from their subsidiaries set up to operate in the capital market.
The Bangladesh Securities and Exchange Commission (BSEC), through the DSE, wrote to all 61 regular banks in the country requesting their capital market investment data earlier this year. Forty-seven banks answered the call.
According to regulatory sources, as of March 10, the contribution of 42 banks to the capital market accounted for almost all of the banking sector’s total exposure – over Tk 22,300 crore. In contrast, five banks – one new private commercial bank and four foreign banks – reported having no investment in the capital market.
The banks on an individual basis have exposure of less than Tk 15,000 crore in the capital market, which includes their own portfolio investment of more than Tk 7,000 crore, almost Tk 5,000 crore in loans to their subsidiaries on the capital market, less than Tk 2,000 crore exposure through investments in UCITS and loans to other market intermediaries that are not their subsidiaries.
Banks’ portfolio investment is less than half of what the capital market got from the still thriving mutual fund industry, which manages over Tk 16,000 crore.
The market exposure of the banking sector has long been widely sought information by stock market investors, as their buying and selling tendencies are believed to influence market trends.
Bangladesh Bank allows banks to increase their individual capital market exposure up to 25% of their capital base or equity, or 50% on a consolidated basis.
The reporting banks’ individual exposure, including their own portfolio investments and loans to brokerage, merchant banking and asset management subsidiaries, amounted to 17.79% of their total capital on 10 March of this year.
The industry average is several hundred basis points lower as banks not covered by the BSEC compilation invested an insignificant amount, according to central bank sources.
The BSEC report also reveals that banks made more than 888 crores in profits from their solo exposure to the stock market in 2021, which generates an annual return of more than 6%.
Of the 42 banks that invested in the capital market, only two suffered losses in their portfolio and IFIC bank achieved the highest return on investment in 2021.
The reporting banks’ provision against unrealized portfolio losses in the stock market was Tk 431 crore.
Some banks, including Dutch-Bangla, Meghna and Shimanto Bank, have exposure levels below 10% and have significant leeway to increase investments in listed securities, according to the BSEC report.