Home ›› 12 Oct 2022 ›› Front
Bangladesh’s bond market to GDP ratio is 8 per cent, indicating that it is less developed and considerably smaller than the world’s emerging markets, experts say.
The country needs to improve its bond markets as the financial system is changing fast, marked by strong economic growth and big infrastructure development projects as well, they said.
A complex and lengthy process, fluctuations in bank interest rates, and excessive regulations on trustee registration are the obstacles to developing the bond market, they identified.
As of June 2022, the country’s total debt market size reached $70 billion, including $67 billion in government bonds and $3 billion in corporate bonds, according to Shanta Asset Management Ltd.
Corporate bonds are almost non-existent as they account for only 0.1 per cent of GDP and the government bond-to-GDP ratio is 7.9 per cent.
In sharp contrast, the bond market size-to-GDP ratio is 141 per cent in Japan, 169 per cent in Malaysia, 151 per cent in South Korea, 115 per cent in Singapore, 105 per cent China, 91 per cent in Hong Kong, 90 per cent in Thailand, 49 per cent in India, 30 per cent in Indonesia, and 26 per cent in Vietnam.
The monthly average secondary government securities transaction is around Tk 135 billion against the Dhaka Stock Exchange’s monthly average turnover of Tk 250 billion.
“The bond market is important for financing government projects, fiscal deficit, an alternative source of long-term financing for corporate and better non-performing loan management,” said Arif Khan, the vice chairman of Shanta Asset Management.
Some critical issues concerning bond issuance include a lengthy process, changes in interest rate dynamics, and the financial statement validity, and trustee registration needs to be addressed to improve the bond market, he said.
“In general, bond issuance takes 4 to 5 months as there are several external parties, such as auditors, credit rating agencies, legal counsel, trustees, securities regulator, etc., involved in the process. On the other hand, it takes 15 to 30 days to get bank loans as the number of external parties involved is limited,” he said.
Experts at an event on Tuesday said if the bond market in the country gets popular, dependence on banks for loans will decrease.
It will also minimize the risk of non-performing loans—one of the biggest challenges in the banking sector. Moreover, the bond market will appear as an alternative sustainable source of long-term finance for industrialists, according to them.
Speaking at the event, FBCCI President Md Jashim Uddin said, “Taking the short-term deposits, it’s tough for banks to disburse loans for the long term, which often pushes entrepreneurs to be unintentional defaulters as they have to pay loans in installments much before receiving any returns from the investments. Therefore, the bond market can be an effective solution for long-term financing.”
Bangladesh Securities and Exchange Commission (BSEC) Chairman Professor Shibli Rubayat-Ul-Islam said that the perpetual bond has already been introduced in the stock market. “When other bonds become available, the bond market will be more popular.”
IFC expressed its keenness to introduce a bond of $4 billion in Bangladesh, according to him.
The BSEC plans to launch orange micro-entrepreneurs, pink bonds for small and micro-entrepreneurs, and a startup board for financing new entrepreneurs, said Rubayat.
Private Industry and Investment Adviser to Prime Minister Salman F Rahman said that the stock market in Bangladesh was only composed of equity transactions. However, the bond market is an integral part of a country’s capital market’s ability to be a vibrant one, he said.
The government has taken initiatives to introduce several bonds in the capital market, he said, noting that mass awareness and bond pricing are crucial to making the bond market popular.
Central Depository Bangladesh Limited (CDBL) CEO Shuvra Kanti Choudhury said bonds failed to get popularity in Bangladesh due to the lack of a secondary market. Former Bangladesh Merchant Bankers Association President Mohammed Nasir Uddin Chowdhury stated that bonds with tenures of more than ten years should be popularized to ensure long-term finance.
According to Amzad Hussain, Director and Chairman of the Stock Market and Bond Related Standing Committee, only 10 per cent of newly issued bonds are kept for public trade, while the remaining 90 per cent are kept for private placement, which is non-tradable.
He recommended that introducing a specific locking period could enable these large slices of the bond to be traded.
He also came up with the idea of reconsidering the rule of providing special-purpose vehicles while banks subscribe to corporate bonds.
There are now 221 treasury bonds with a tenure ranging from 5–20 years listed on the Dhaka Stock Exchange. Government bonds are traded between institutional shareholders, including banks and financial institutions.