The move came after the central bank recently urged financial institutions to inject funds in the capital market
Four state-owned banks have decided to raise their investment in stocks in a bid to increase flow of funds to the capital market.
The Sonali Bank, Janata Bank, Agrani Bank and Rupali Bank announced the decision on Thursday after a meeting between the bank chairmen, managing directors and chief financial officers. The meeting was held at the Sonali Bank head office in Dhaka.
"We are trying to identify where to increase our investments within the limit. Our officials have been instructed to take up necessary measures in this regard," Rupali Bank Managing Director Md Obayed Ullah Al Masud told The Business Standard.
Bankers said the four state-owned banks sit together every four months to enhance cooperation.
Sonali Investment Limited, Janata Capital and Investment Limited, Agrani Equity and Investment Limited, Rupali Bank Securities Limited and Rupali Investment Limited are the subsidiaries of those banks currently working in the stock market.
At least five private banks have also been approached by the central bank to strengthen their position in stocks, according to sources with knowledge of the matter.
According to the Bangladesh Bank data, investment in the stock market by banks came down to 14 percent in June 2019, which was 20 percent in December 2016.
However, according to the Bank Company Act, the maximum allowable limit for investing in the stock market is 25 percent of capital on a solo basis. The limit is 50 percent on a consolidated basis.
Solo basis means an investment by only banks, while consolidated basis means an investment by banks and their subsidiaries.
On a consolidated basis, bank investments in the stock market declined to 25 percent in June this year from 32 percent in June 2016, according to central bank data.
In 2010, the overexposure of banks contributed to a boom in price indices in the capital market. The banks were allowed to invest 10 percent of their liabilities. Later, the government amended the Bank Company Act in 2013, limiting the exposure to 25 percent.