Bangladesh Bank has extended the tenure of the special fund established for banks to invest in the capital market by another year, allowing the facility to remain in effect until December 2027 instead of December 31, 2026.
Under the revised decision, banks will have an additional year to use the special fund to invest in the stock market, aiming to increase market liquidity and encourage institutional investment.
Market sources said the decision comes at a time when the capital market has been struggling with a prolonged liquidity shortage, weak investor confidence and declining institutional participation. Market stakeholders believe the extension could help sustain banks’ investment activities and increase their participation in the market.
Bangladesh Bank introduced the special fund facility in February 2020 to boost liquidity and encourage institutional investment following a sharp market downturn and liquidity crisis during the COVID-19 pandemic.
Under the existing policy, each scheduled bank can form a special fund of up to Tk 200 crore using its own resources or funds borrowed from Bangladesh Bank through repo arrangements. Investments made through this facility are excluded from banks’ regular capital market exposure limits, allowing them to invest beyond their conventional investment ceilings.
However, market stakeholders have urged the central bank to increase the fund ceiling from Tk 200 crore to Tk 300 crore. The Dhaka Stock Exchange Brokers Association (DBA) recently proposed raising the limit to Tk 300 crore per bank and extending the facility for another five years, until November 30, 2031.
Market analysts, however, believe that extending the fund’s tenure alone will not resolve the capital market’s longstanding challenges. They stressed the need to improve banks’ investment capacity and willingness, ensure good governance, attract fundamentally strong companies to the market, restore investor confidence and encourage greater participation by institutional investors.
The effectiveness of the latest extension will ultimately depend on banks’ investment decisions, overall market conditions and efforts to rebuild investor confidence.
