The capital market exposure of banks in Bangladesh rose notably in the March quarter of 2025, due to higher idle funds in the banking system and limited avenues for investment in a sluggish economy.
According to Bangladesh Bank data, banks鈥� exposure on a solo basis climbed to 18.15 per cent of their total capital in March, up from 15.28 per cent at the end of December 2024.
On a consolidated basis 鈥� which includes banks and their subsidiaries such as merchant banks, brokerage arms, and other investment vehicles 鈥� the exposure surged to 27.15 per cent, compared with 23.23 per cent three months earlier.
Banks invested much as the stock market reached bottom line which created opportunity for the banks to gain more profits.
DSEX, the DSE key index slightly increased to 5,219.16 points on March 27 from 5,216.44 points on December 30, 2024 displaying sluggish movement. It closed at 5,523.78 on September 11.
Under the Banking Companies Act, 1991, banks are allowed to invest up to 25 per cent of their total capital on a solo basis and 50 per cent on a consolidated basis.
Total capital here refers to paid-up capital, statutory reserves, retained earnings, and non-repayable share premium balances.
A senior central bank official explained that these exposures cover a wide range of assets including listed shares, corporate bonds, debentures, mutual funds, placement shares, and loans to subsidiaries.
While banks benefit from capital gains and dividends in a bullish market, they also face amplified risks when share prices decline.
At present, 36 banks and their subsidiaries are directly involved in the capital market operations, while 35 private commercial banks (PCBs) and one state-owned bank are themselves listed on the Dhaka Stock Exchange (DSE).
The contribution of banks to the DSE鈥檚 market capitalisation rose to 18.7 per cent in 2024, from 15.1 per cent a year earlier, highlighting their growing role in the market.
Banks also channel funds into the stock market through merchant banking wings and investment subsidiaries.
By the end of 2024, banks had provided about Tk 8,689 crore in such financing.
During 2009, banks invested far beyond legal limits, with several institutions committing over 10 per cent of their liabilities to the capital market 鈥� a breach of the Banking Companies Act.
This excessive reliance of the stock market on bank funds contributed to a massive crash that wiped out the savings of thousands of small investors.
If banks and the capital market had maintained a safe distance, the 2010鈥�11 crash could have been avoided, stock brokers said.
While average exposure across the sector currently stands at around 15 per cent now, the sharp rise seen in March raises questions about sustainability.
With economic growth slowing, loan demand subdued, and excess liquidity piling up, banks appear increasingly inclined to park funds in the capital market.
Experts said that investments in the stock market are inherently risky. If banks chase short-term gains instead of focusing on core banking, the risks of instability will grow.
