Bangladesh Bank has fined seven government and private banks Tk 1.7 million each for investing more than the permissible limit in the stock market.
This decision was taken at a recent meeting of the top BB officials and the central bank issued letters to the banks on Thursday.
In the letter, which the banks received on Sunday, BB also warned the banks of further sanctions should they fail to curb the practice.
The fine was handed down as per the article 109 (11) of the Bank Company Act and the banks have been asked to pay the amount in 14 days.
However, when asked, BB spokesperson and executive director Shuvonkor Saha said the department concerned had not informed him about anything to this end.
BB sources said on 21 July 2016 the banks were asked to adjust investment more than the permissible limit in the stock market. At the time, 13 banks had the chance to transform loans into paid up capitals of subsidiaries, which helped them to invest a further Tk 5 billion in the stock market.
As a result, loans worth Tk 19.84 billion of these banks became paid up capital of their subsidiaries, meaning the banks' investment in the stock market went down.
It eased the pressure of loans for the banks and gave them a new avenue to invest in the share market. They had to comply with the Bank Company Act by 21 July, which was also ensured by such developments.
As per the Bank Company Act, a bank cannot invest more than 25 per cent of its paid up capital, share premium, statutory reserves, and retain earnings. The banks that had invested more than the permissible limit had been asked to adjust their investment in the stock market by 21 July.
The 13 banks that were given a respite by the BB -- the chance to transform loans into paid up capitals of subsidiaries -- were AB, IFIC, Mutual Trust, National, ONE, Pubali, Southeast, Shahjalal Islami, The City, Bangladesh Development Bank, Mercantile and Premier.
However, a number of banks still continued to flaunt the rules, which compelled the BB to slap the fine on them on Sunday. BB sources said eight more banks will soon be fined for the same reason while investigations are going on against six more.
The country's share market scene has been experiencing a bullish trend for the last few months. On 1 June, the DSEX, the prime index of Dhaka Stock Exchange, was 5439 points while the turnover was Tk 5.26 billion. On Sunday, the DSEX was 6,206 points, with the turnover being Tk 10.54 billion.
This means the index has jumped 767 points in the last four months while the turnover has almost doubled during the same period. In the last one and half months, the banks' shares have also seen a big jump. The central bank thinks the role played by the banks is behind the market's bullish trend.