Dhaka, Bangladesh (BBN)– Bangladesh’s regulatory bodies have decided to make coordinated efforts for revamping the country’s bond market aiming to meet the long-term financing need of the economy.
The decision was taken at a coordination meeting of some major watchdog bodies, held at the central bank headquarters in Dhaka on Thursday with Bangladesh Bank (BB) Governor Fazle Kabir in the chair.
The watchdog bodies are the BB, the Bangladesh Securities and Exchange Commission (BSEC), the Office of the Registrar of Joint Stock Companies and Firms.
They also included the Insurance Development and Regulatory Authority (IDRA), the Micro-credit Regulatory Authority (MRA), the Department of Cooperatives (DoC) and the Bangladesh Telecommunication Regulatory Commission (BTRC).
The regulator’s latest move was come a couple of days after incumbent finance minister’s emphasis on making the country’s bond market vibrant.
A coordinated effort has already been initiated to raise BDT 8.78 trillion from the bond market for achieving 8.0 per cent plus economic growth by 2021.
To this end, two committees have been formed to boost the country’s nascent bond market, particularly the corporate one.
One committee is headed by Md. Ashadul Islam, Secretary, Financial Institutions Division of the Ministry of Finance and another by BB General Manager Md Khurshid Alam.
The fund will be required to bridge the resource gap for achieving the 8.0 per cent plus growth within the timeframe to become a middle-income country, according to officials.
The size of nominal gross domestic product (GDP) is estimated to reach BDT 32.78 trillion by the end of fiscal year (FY) 2020-21 while the resource gap will hit BDT 8.78 trillion, according to the BB’s estimation.
The country’s central bank has calculated the resource gap taking into consideration the credit flow by banks, investment and fund flow from the capital market.
The banks are still a dominant financial system asset in Bangladesh, contributing more than 62 per cent of asset in 2018, while the capital market has contributed 16.50 per cent, the central bank said in a study.
The officials said Bangladesh needs substantial amount of long-term funds for investment to help the country achieve economic growth at the rate of 8.0 per cent and above.
Both bond market and banks need to be major sources of funds for an economy that aspires to achieve an 8.0 per cent plus growth by the end of the fiscal year (FY) 2020-21, they added.
SK Sur Chowdhury, banking reforms advisor and former deputy governor of the BB, said the regulators have agreed to extend their support to the efforts for developing the bond market.
He also said there is no alternative to boosting the bond market for facilitating industrialisation of the country.
“We’ve to develop the bond market immediately for creation of a long-term financing source.”
But another central banker said tax structure should be streamlined soon to encourage corporate entities for issuing corporate bonds in Bangladesh.
Currently, only one corporate bond—Islami Bank Bangladesh Limited (IBBL) Mudarba Perpetual Bond—is now traded on the country’s prime bourse, the Dhaka Stock Exchange (DSE).
The central banker also said the corporate bond market in Bangladesh, however, remains underdeveloped mainly due to disclosure rules and strict governance norms of the market.
The committees are trying to develop strategies for encouraging entrepreneurs to issue corporate bonds instead of receiving loans from commercial banks, he added.
For funds, corporate borrowers prefer to rely on banks instead of the bond market to avoid the need for complying with disclosure requirements and strict governance norms of the market, according to the central banker.
“In the absence of a sufficient large corporate bond market, an overly large burden of corporate lending is taken on by the banking system, thus, creating maturity mismatch in the market,” the central bank said in the study report earlier.
In such an environment, the over-sized banking system becomes a fertile ground for crony capitalism, resulting in lax lending criteria and relaxed investment standards by companies, it added.
Actually, there is no alternative to building the long-term debt market to fill the resource gap for achieving more than 8.0 per cent economic growth.
The regulators should be tried to mobilise the fund to help bridge the resource gap through developing a long-term debt market in Bangladesh.