Dhaka, Bangladesh (BBN) – The central bank of Bangladesh has introduced a new calculation system for valuation of the holding of treasury bonds by the primary dealer (PD) banks to help minimize any adjustment loss, officials said.
Under the new method, the valuation of Bangladesh Government Treasury Bonds (BGTBs), issued between April 2009 and December 2011 and categorized as ‘held for trading (HFT)’ by the PDs, may be re-measured at an ‘amortized cost’, instead of the fair value.
“The central bank has introduced the new calculation system aiming to reduce the valuation adjustment loss of the BGTBs held by the PD banks,” a senior official of the Bangladesh Bank (BB) told BBN, adding that the new calculation would also help the PD banks to increase their profitability through reduction of their re-valuation loss of the BGTBs.
“The book value, generally known as fair value, carrying the amount of the bonds under consideration becomes the new amortized cost at the date of re-measuring,” the central bank said in a circular, issued on Thursday.
The circular also said the re-measuring of the securities should be carried out within January 31 this year without considering the purchase period.
In this case, the book value carrying amount of the bonds under consideration as on January 1, 2012 should be taken as the new amortized cost.
“In the future, the treasury bonds categorized as HFT securities which remain unsold for two years from the date of purchase may be re-measured at amortized cost,” the central bank said.
The treasury bonds re-measured at amortized cost, although categorized as ‘held for maturity (HTM),’ for the time being will be excluded while calculating the present HTM to HFT as per ratio of 85 per cent and 15 per cent respectively of statutory liquidity ratio (SLR), according to the circular.
The re-measured securities will be eligible for SLR, repurchase agreement (REPO) and assured liquidity support (ALS), it said, adding that all other present regulations relating to HTM securities would be applicable to re-measured securities.
“Any difference between the new amortized cost and the maturity amount should be amortized over the remaining life of the bonds,” it noted.
The PD bankers welcomed the BB’s latest move, saying that it would help minimize the valuation adjustment loss of the BGTBs under the re-measured calculation system instead of the mark-to-market one.
Mark-to-market system is a process of calculation to determine the market value or worth of an existing asset.
“The yield on BGTBs will be marketable in the near future which will helpful for the PD banks in creating a dynamic secondary market,” a senior member of the Primary Dealers Bangladesh Limited (PDBL) said.
Currently, four government bonds – 5-year, 10-year, 15-year and 20-year -are being traded in the market.
The central bank earlier selected 15 PDs — 12 commercial banks and three non-banking financial institutions (NBFIs) — to deal with the government-approved securities in the secondary market.
BBN/SSR/AD-20Jan12-1:05 pm (BST)
