Financial Institutions Division to make a decision soon

The Financial Institutions Division (FID) under the Ministry of Finance is finally going to take the decision about taka-linked bond proposed by Asian Development Bank.

It had been on the discussion table at the Economic Relation Division (ERD) for two months before they finally decided this week to forward the issue to the FID as it was linked to the capital market, said a senior official of the ERD.

Bangladesh first approved bonds denominated in the local currency Taka in 2015 and International Finance Corporation issued their first Bangla Bond in 2019.

Two agro-based concerns of Pran-RFL limited received a total of Tk160 crore investments from bonds that would be matured in three years and six years.

According to sources from the government financial institute, the process of the ADB-proposed taka-linked bond was first initiated in 2019. After having a verbal discussion, ADB sent the proposal to the Finance Minister AHM Mustafa Kamal in 2019.

Following the development then ADB Country Director Manmohan Parkash wrote to ERD Secretary Monowar Ahmed.

The sources said a sample approval letter was attached with the letter needed by ADB to process the local currency bonds.

According to the sample letter, re-opening of local currency bonds with the same conditions for the same project extension was confirmed. For long dated projects ADB also kept the option of re-financing of local currency bonds with the same conditions.

All sorts of domestic investors, insurance funds, financial institutions and foreign institutions will invest in the local currency bond.  

The bond will be eligible instruments for reserve requirements of commercial banks and for the purpose of any local banking operations.

It will also be eligible for repurchase transactions between two institutional holders of the local currency bonds, the sample letter mentioned.

The discussion on possible ADB bond issue denominated in local currency was interrupted for an unknown reason. It might be for emergence of Covid-19, said a top ERD official.

According to ADB Wing sources, a brief session by ADB was held in August and another knowledge sharing session by ADB was held on September 14.

During the sessions the technical issues were discussed but the interest rate had never been mentioned, ERD officials said.

As it is a matter of the capital market, the process will be forwarded to FID, an ERD senior official confirmed on Monday.

ERD leads as the focal point of the government for interfacing with the development partners as well as for coordination of all external assistance inflows into the country.

It assesses the needs for external assistance, devising strategy for negotiations, mobilizing foreign assistance, formalizing and enabling aid mobilization through signing of loans, grant agreements, determining and executing external economic policy.

FID deals with the law and policy issues related to banks, non-bank financial Institutions, capital market, insurance sector and microcredit sector.

FID also coordinates the activities for formulating policies on capital adequacies and reviewing related policies and programmes.

When contacted, FID Secretary Sheikh Mohammad Salim Ullah on Wednesday said he was not aware of the fact.

Economist Dr Zahid Hussain said local banks give bonds for short periods like six or nine months and the bonds for three or five years are in general much more useful for the businessman.  

As a source of new investment, a local currency bond has several possibilities. But it depends on issues like interest, maturity period and how payment will be made and so on, he added saying if the condition favoured the businessman it should be welcomed.