No risk of asset prices bubble in Bourse – CB

The Central Bank’s latest directive to commercial banks on provision of margin trading facilities for trading of shares noted that at present there is no risk of a possible assets prices bubble hence the removal of the previous ruling to limit exposure to 5%.

The Central Bank has reviewed commercial banks’ exposure to the stock market and the credit limit on margin trading facilities of 5 per cent of total loans introduced on August 26, 2011.

The latest directive said considering the market correction reflected in the Price Earnings Ratio and the low utilisation of the credit limit on margin trading by many banks since August 2011, indicating banks’ commitment towards prudent risk management, the Monetary Board is of the view that a possible assets prices bubble may not arise.

It also noted that the board of directors of licensed commercial banks should ‘set their internal limit on margin trading on shares based on tolerable levels in line with the risk management framework’ the Central Bank has already set.