BB moves on merchant banking Commercial banks directed to set up subsidiaries

Bangladesh Bank has directed commercial banks to form separate
subsidiaries to operate any merchant banking. The move is meant to
uphold the interest of depositors, Bangladesh Bank said in a circular
to commercial banks yesterday. "The subsidiary companies to be formed
under a bank for merchant banking must follow rules and regulations
issued by the Securities and Exchange Commission," the central bank
said. "A bank will have to take permission from Bangladesh Bank to
set up a subsidiary company for merchant banking," the circular
added. The subsidiary company will not be allowed to purchase in its
own portfolio or in customer accounts any share of a listed company
where the directors of the subsidiary or its parent company or their
family members are involved. According to the circular, the banks --
already in merchant banking -- will have to turn their units into
subsidiaries by January 2010. Prime Bank, AB Bank, EXIM Bank, Trust
Bank, Janata Bank, Southeast Bank and Standard Bank have merchant
banking wings. Besides, Sonali Bank and Agrani Bank have merchant
banking licences. A subsidiary will have to attach its own financial
report in the annual financial statement of its parent company. If a
subsidiary company seeks to purchase more than 15 percent shares in
any company with loans from its parent bank, it will have to take
approval from Bangladesh Bank. The Bangladesh Bank circular said many
banks in merchant banking are violating rules under the Banking
Companies Act. The law says that no commercial bank can hold shares
whose value exceeds 30 percent of its paid-up capital. But some
banks are not following this rule. Bangladesh Bank has advised the
banks to properly follow the rule. Some banks have been accused of
getting involved in irregularities, which were later discovered by
the central bank in its investigations. A Bangladesh Bank official
said the central bank had issued a policy guideline.