BOND MARKET OF BANGLADESH
Prapared for : Mohammad shahidul Islam
Director, MBA Program
Prepared by : A. M. Shahed Chowdhury
Batch No. 27
ID No. 09435020
SOB, RMBA, UITS
Date of Submission: 21-01-2011
Institution: University of Information Technology& Sciences
BOND MARKET OF BANGLADESH
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At present, its main fixed-income
Financial products are bank deposits, bank loans, government savings certificates, term loans, treasury bills, and government bonds and corporate debt (syndicated loans, private placement, and debentures). But in general the corporate debt market is still very small compared with the equity market. Numerous factors in Bangladesh today suggest that Bangladesh will not be able to develop an active, local-currency fixed-income market. In this paper, we will discuss the current situation of our bond market, what the drawbacks are and what may be the remedy for overcoming these drawbacks.
Money Market is an integral part of the financial market of a country. It provides a medium for the redistribution of short term loan-able funds among financial institutions, which perform this function by selling these short term securities that usually are highly marketable. The money market in Bangladesh is in its transitional stage. The various constituent parts of it are in the process of formation, while continuous efforts are being made to develop appropriate and adequate instruments to be traded in the market. At present Money market instruments such as Government treasury bills of varying maturity, Bangladesh Bank Bills, Certificates of Deposits, Bankers Acceptance or L/C and Repo and Reverse etc in limited supply are available for trading in the market. However, the short-term credit market of the banking sector experienced a tremendous growth since in recent years, a total of about 6000 branches of the scheduled banks provided short-term credit throughout the country in the form of cash credit, overdraft and demand loan. The paper first analyzes the current situation of the bond markets in Bangladesh: The bond market has played a limited role in the Bangladesh economy. The Bangladesh bond market is also rather shallow compared to the neighboring countries.
Then, the paper analyzes the main impediments to the Bangladesh debt market include (I) the weak regulatory framework; (ii) supply-side constraints such as a lack of the benchmark bonds; (iii) demand-side constraints such as the limited investor base; (iv) a lack of intermediaries with expertise in debt products; (v) a lack of confidence in corporate borrowers; (vi) market distortions which are caused by the National Savings Scheme (NSS) offering above-market returns; and (vii) a lack of interest from private companies, including financial intermediaries and large business, in launching new debt products due to high fees.
Finally, the paper offers a roadmap for the development of the Bangladesh bond market.
Before independence, the use of bonds as a means of resource mobilization was virtually non-existent in Bangladesh. Immediately after liberation, the government of Bangladesh reissued long-term bonds accepting the liabilities of the Income Tax Bonds and the Defense Bonds of the Pakistan government held by Bangladeshi...