Special funds for stock market: Repo rate slashed to aid banks

September 25, 2020 09:34:30

| Updated:

September 25, 2020 10:07:39

The Bangladesh Bank (BB) on Thursday amended some sections of its earlier notice related to the formation of a special fund by banks for investments in the stock market.

On February 10, the BB allowed banks to form their special funds worth Tk 2.0 billion each to invest in the stock market in an attempt to boost the sagging capital market.

In the amended circular, the BB said that it has changed some investment guidelines for the fund, considering the existing scenario of the money market.

It said banks can now borrow from the central bank through repo facilities at a rate of 4.75 per cent, down by 25 percentage points from the original circular (original circular 5.0 per cent). This is in line with the existing rate.

In case of investment in the listed corporate bond/debenture, the coupon rate should be at least 10 per cent.

To determine the variable rates on the investment of such listed corporate bond/debentures, a 10-year treasury bond yield plus 1.0 per cent should be considered.

On asset-backed bond/sukuk, fixed rate should be 8.0 per cent coupon or profit bearing while the variable rate should be at least equal to the 10-year treasury bond yield plus 1.0 per cent.

The yield of the latest bond issuance will get preference.

However, the fund formed by banks’ own sources or through collecting liquidity from the central bank through repo.

Brokerage houses, merchant banks, and stock market subsidiaries of banks and financial institutions would get access to the fund through the banks, according to the original BB circular.

The fund will remain valid until February 9, 2025.



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