The Bangladesh Bank (BB) is still being cursed by a section of market players ---some of them were actively involved in stock price manipulation and some others are doing it as natural reaction to the loss they had suffered--- holding it responsible for the collapse of the market in 2010.
They blame the central bank for asking the banks to bring down their investments in stock market to the permissible limit, 10 per cent of their total liabilities then. They saw the directive as the death knell for a market that had soared beyond imagination.
The truth is that these people have been blaming the BB for wrong reasons. The central bank deserved to be blamed not for asking the banks to go by the rules but for remaining indifferent to continuous over-exposure of banks to the stock market.
The banks have been actively and enthusiastically involved in stock market since early 2008. They made hefty profit out of stock market investment both in 2008 and 2009. Even their earning from stock market in 2010 was substantial.
In fact, many banks had forgotten that they were to comply with a central bank directive in relation to capital market exposure. The profit motive had made them as crazy as small investors on the streets. Indifference on the part of the central bank had emboldened them to cross the limit.
When the central had realized its folly and asked the banks to rein in themselves, it was too late. The damage was done by then. Millions of investors across the country lost billions of taka and many turned paupers. The banks too suffered losses. But the extent of their loss has not been revealed until now. Possibly, it will not be known ever.
However, one statement made by governor of the central bank Dr. Atiur Rahman last Saturday bears testimony to the fact that the damage caused to the banking sector by the stock market bubble was quite extensive.
Speaking at a seminar, Dr. Rahman said the central bank had saved at least 9 to 10 banks from collapsing during the stock bubble in 2010 by intervening. He did not disclose the names of the banks.
He also noted with satisfaction that most banks have already got their exposure to stock market within the newly fixed limit, which is equivalent to 25 per cent of their respective paid-up capital plus reserve.
The BB governor was also optimistic that the banks that still had exposure to the capital market beyond the allowable limit would be able to bring it down by June next year, the deadline set by the central bank. Yet he talked about allowing some 'regulatory space' for the banks that would face difficulty in accomplishing the task.
The indication about allowing the 'regulatory space' might satisfy, to some extent, a section of market players who have been demanding, of late, an extension of the deadline for limiting the banks' exposure to capital market. They have a fear that such an act of regulatory compliance might pull the market further down.
But it would not be proper on the part of the central bank to stretch its regulatory forbearance any further for it had done enough damage to the country's capital market and, unknowingly, contributed to the evil design of luring of millions of unsuspecting investors by a band of manipulators in 2010.
Undeniably, it would have been impossible for the manipulators to generate enough heat in the stock market without a larger participation of banks and other financial institutions. The funds that individual investors had brought to the market were not enough to make the market over-heated.
The banks had found the stock market a place for making easy bucks. In fact, they were, by and large, successful in their mission. Yet the belated move on the part of the central bank had caught some banks off-guard. They have suffered losses. Even five years after the market debacle, withdrawal from the market in compliance with the legal provision for capital market investment would cause substantial financial losses to a number of banks.
Irony is that some individuals, who allegedly played key role in the abnormal rise of the market in 2010, are found attending seminars and symposia on stock market where they have been suggesting measures for restoring 'confidence' of investors in the market. They are the people who were responsible for causing substantial damage to a market that had returned to normalcy after nearly one and a half decades since the first debacle it had suffered in 1996. The 1996 market collapse too was their doing.
The way these people are now roaming freely and taking part in the job of 'reviving, a stagnant market, it is not unlikely that are hatching yet another master plan for slaughtering the innocent investors. However, none of their plan would work without the flow of enough funds into the market. In the Bangladesh context, banks remain the most important investment players as far as stock market is concerned. Banks, hopefully, having learnt enough lessons would not go beyond the dotted line, at least, in the near future.
