Bank-Insurance
BB ordered to reserve provisions against losses in shares and bonds
On Wednesday (May 24), Bangladesh Bank issued a directive to banks regarding the reservation of provisions against investment losses in shares, bonds, debentures, and mutual funds of listed companies.
The directive was sent to the managing directors and chief executive officers of all banks operating in the country. According to the central bank’s instructions, if the purchase price of securities, other than government securities, in terms of investment is lower than the latest market value, banks must reserve provisions equivalent to the difference between the purchase price and the latest market value.
This difference in price will be recognized as a loss in investment value. This provision requirement applies to listed shares, bonds, debentures, and mutual funds or any portfolio of funds. Additionally, provisions will be reserved separately for equity shares, bonds, debentures, and mutual funds or any portfolio of listed companies.
In addition, it has been stated that in the case of investment in non-listed equity shares, if the total value of the company decreases, banks must reserve provisions equivalent to the reduced value as a percentage of the investment ratio within the institution, through the medium of the bank. If the invested company ceases to exist or its operations are suspended or deemed non-performing, provisions must be reserved for the same amount as the investment, unless any visible operations are carried out.
Furthermore, the directive specifies that for non-convertible cumulative preference shares, if the bank does not receive the specified interest, dividends, or cash gains as per the agreement, a provision of 25% of the principal amount must be reserved at the end of the first year. For the second year, an additional 25% and a provision of 100% must be reserved if the accrued gains remain unpaid for three years.
According to the recent directive from the central bank, if the average purchase price of be-maturity mutual fund units is lower than the surrender price (the value at which units are returned to the asset management company), banks must reserve provisions equal to the amount of the difference between the average purchase price and the surrender price. In line with these guidelines, banks are required to maintain provisions on a quarterly basis and submit the provision reserve information to the Bangladesh Bank.
This directive, issued under Section 45 of the Bank Companies Act, 1991, will come into effect from June 30th.
The Bangladesh Bank has adjusted the dollar price to Tk117 from Tk110 by introducing the crawling peg exchange rate mechanism.
Under this new approach, the bank will buy and sell dollars with Tk117 as the mid rate.
This decision was reached during a meeting of the monetary policy committee on Wednesday, May 8th.
Additionally, the committee has opted to discontinue the SMART lending rate mechanism, allowing banks to set their lending rates based on dollar demand and supply, according to a circular issued after the meeting.
The crawling peg system permits a currency with a fixed exchange rate to fluctuate within a specified band of rates, combining features of both fixed and floating exchange rate regimes.
On May 5th, Bangladesh Bank Governor Abdur Rouf Talukder announced the adoption of a market-based interest rate and the implementation of a crawling peg system to stabilize the foreign exchange rate.
He stated that the central bank is collaborating with prominent economists and bankers to devise a contractionary monetary policy aimed at curbing inflation and restoring macroeconomic stability.
Earlier, on April 2nd, the World Bank stressed the importance of a crawling peg mechanism aligned with market-clearing exchange rates to narrow the gap between formal and informal exchange rates, as outlined in the latest Bangladesh Development Update report.
Meanwhile, the International Monetary Fund (IMF) has advocated for a market-based dollar rate. In January 2023, the IMF attached several conditions to a $4.7 billion loan facility over a three-and-a-half-year period. Bangladesh has received two installments of the loan by fulfilling nearly all conditions, except for the reserve requirement.
On Sunday (May 5), the Bangladesh Bank (BB) once again dissolved the board of directors of the National Bank.
In a letter addressed to the managing director of the National Bank, the central bank announced the cancellation of the existing board of directors.
Furthermore, the banking regulator established a new board of directors and appointed Khalilur Rahman, the bank’s sponsor director, as the new chairman, according to the BB’s communication.
Mezbaul Haque, spokesperson for the Bangladesh Bank, commented on the development, stating that the action was taken to bolster the bank’s board of directors.
This move comes after a similar action in 2023 when the central bank ordered the dissolution of the National Bank’s board and formed a new one.
Prime Bank PLC has recently received Bancassurance Business commencement approval from Bangladesh Bank.
Mohammad Shahriar Siddiqui, director, BRPD, Bangladesh Bank handed over the approval letter to Nazeem A Choudhury, deputy managing director – consumer banking of Prime Bank PLC, at a ceremony held at Bangladesh Bank recently.
Mohammad Ashfaqur Rahman, additional director, BRPD, Bangladesh Bank, Ashraful Alam, joint director, BRPD, Bangladesh Bank, Miah Mohammad Rabiul Hasan, chief bancassurance officer, Prime Bank PLC were also present at the ceremony.
Bancassurance is a partnership between a bank and insurance company that will allow a Bank to sell insurance products of the insurance company through its distribution channels.
To offer a wide range of products to its customers and ensure best in class service, Prime Bank has partnered with leading insurance companies National Life Insurance Company Ltd. and Reliance Insurance Ltd.
Being one of the leading banks of the country, Prime Bank hopes to cater to the needs of insurance requirements of its customers through Bancassurance, in Bangladesh market.
