The Bangladesh Bank yesterday fined NRB Bank Tk 49.50 lakh for breaking securities rules by buying Pioneer Insurance shares above the investment cap.
Just two weeks ago, the central bank fined NRB Commercial Bank for its aggressive investments in the capital market in violation of laws.
This signals the BB’s strong stance in preventing banks from overexposing the stock market, as it seeks to protect depositors and maintain financial sector stability.
Once the benchmark of the Dhaka Stock Exchange crossed 6,500 points, the central bank began to view the index as overvalued. The DSEX gained 31 points, or 0.44%, to 7,228 yesterday.
Thus, the BB investigated the participation of banks in the market and recovered excess liquidity from the banking system.
It surveys bank investments daily to avoid overexposure.
This decision led the BB to discover the rule violation.
The BB sent a letter yesterday to the Managing Director of NRB Bank informing him of the sanction.
He asked her to pay the fine within three working days. Failure to meet the deadline would result in the debit of the amount from the bank’s current account held with the central bank.
Earlier in August, the BB asked the private commercial bank to explain the overexposure of investments.
The bank’s response to its investment in Pioneer Insurance was not acceptable under the Bank Company Act 1991. Due to the violation of the law, a fine of Tk 49.50 lakh was imposed, the bank said. central in a letter yesterday.
A bank can invest a maximum of 25 percent of its total capital in the stock market. It cannot invest more than 5 percent of the total capital, share premiums and retained earnings in the case of a single company.
A bank is allowed to invest up to 10 percent of its paid-up capital in the shares of a single company.
NRB Bank broke the rules by investing in Pioneer Insurance, BB said.
After reviewing bank documents, she discovered NRB Bank’s involvement in circular and speculative transactions, a central banker said, on condition of anonymity.
Circular trading is a fraudulent scheme in which sell orders are entered by a broker who knows that compensatory buy orders for exactly the same number of shares at the same time and at the same price have been or will be entered.
“We have taken the step so that the banks cannot engage in speculative transactions,” said the central banker.
According to BB officials, many banks have flouted the rules by investing large amounts of funds in the capital market.
Mamoon Mahmood Shah, managing director of NRB Bank, could not be reached for comment. A number of senior officials at the lender declined to comment.
On September 5, the BB fined the NRB Commercial Bank Tk 23.50 lakh for its aggressive investments in the capital market in violation of the rules.
The bank’s stock market exposure stood at 27.33 percent of its capital in July from a cap of 25 percent.
In July, long before the key DSE index hit its all-time high, the BB asked lenders to step up monitoring of the loan use of stimulus packages as it discovered that cheap funds were funneled into unproductive sectors like market action.