Examination Committee: Dr. Arun Kumar Gopalaswamy (Chairman) Prof. - - PowerPoint PPT Presentation
Examination Committee: Dr. Arun Kumar Gopalaswamy (Chairman) Prof. I. M. Pandey (Co-chair) Prof. I. M. Pandey (Co-chair) Dr. Sundar Venkatesh Presented by Md. Abid Hossain 1 Agenda Objectives of the research 1. 2. Sources of data Bond
Examination Committee:
Presented by
1
1.
Objectives of the research
2.
Sources of data
3.
Bond and bond market
3.
Bond and bond market
4.
Bond market in Bangladesh
5.
Constraints on development of bond market
6.
Findings and recommendations
7.
Conclusion
2
1.
Objectives of the research
2.
Sources of data
3.
Bond and bond market
3.
Bond and bond market
4.
Bond market in Bangladesh
5.
Constraints on development of bond market
6.
Findings and recommendations
7.
Conclusion
3
Main objective – To contribute to develop an effective bond in Bangladesh. The specific objectives :
To get an overview and specific features of bond market in Bangladesh. To get an overview and specific features of bond market in Bangladesh. To identify the impediments/ constraints and to tackle the problems in
To make recommendations for the developments of the bond market.
4
1.
Objectives of the research
2.
Sources of data
3.
Bond and bond market
3.
Bond and bond market
4.
Bond market in Bangladesh
5.
Constraints on development of bond market
6.
Findings and recommendations
7.
Conclusion
5
Primary Data- Interviews and discussion with some key personnel of Bangladesh Bank( BB), Securities and Exchange Commission (SEC), and Dhaka Stock Exchange (DSE). Secondary Data
Central Depository Bangladesh Limited (CDBL). Debt Management Department, Bangladesh Bank (BB).
Research publications from Policy Analysis Unit, BB.
Research publications from Policy Analysis Unit, BB. Economic Relations Division, Ministry of Finance, Government of Bangladesh(GOB). Finance Division, Ministry of Finance, GOB. Donor publications. Government publications. Newspaper clippings. Website materials.
6
1.
Objectives of the research
2.
Sources of data
3.
Bond & bond market
3.
Bond & bond market
4.
Bond market in Bangladesh
5.
Constraints on development of bond market
6.
Findings and recommendations
7.
Conclusion
7
Financial Market Capital market Money Market Capital market ( Provide long term financing of more than
Stock Market Bond Market Money Market ( Provide short term financing of less than one year)
8
A bond is debt instrument issued for a specific period for the purpose
In other words, a bond is fixed interest financial instrument issued by
government, corporate, and other large entities. government, corporate, and other large entities.
Bonds are tradable and basically the price of a bond depends on the
existing interest rates in the market for an equally risky instrument and the coupon on the bond.
Thus a bond is like a loan: the holder of the bond is the lender
(creditor), the issuer of the bond is the borrower (debtor), and the coupon is the interest.
9
Issued by T-bonds( more than 10 year) T-notes (more than 1 year and less than 10 Bonds Issued by government year and less than 10 year
T-bills(less than 1 year)
Municipal bonds Corporate bonds
10
Prerequisites for establishing an efficient bond market include:
sound monetary and fiscal policies; stable and credible government; stable and credible government; secure and smooth settlement arrangements; effective legal, tax, and regulatory infrastructure; and a liberalized financial system with competing intermediaries.
11
1.
Objectives of the research
2.
Sources of data
3.
Bond and bond market
3.
Bond and bond market
4.
Bond market in Bangladesh
5.
Constraints on development of bond market
6.
Findings and recommendations
7.
Conclusion
12
Currently bond market plays a limited role in the Bangladesh economy. The bond market is very small compared to the neighboring countries. End of 2010, the outstanding bond volume per GDP was only 15%, compared to End of 2010, the outstanding bond volume per GDP was only 15%, compared to
India (40%), Sri Lanka (35%), Pakistan (31%), and Nepal (10%).
The share of the Bangladesh bond market among South Asian countries was
Government should initiate measures to improve the scope of bond markets in
Bangladesh.
13
Sl no. Debt Securities Year of Issue Features Size(BDT Million) 1 *17% Beximco Pharma Debenture 1988 20% Convertible 40 2 *17% Beximco Limited Debenture 1989 60 3 *17% Beximco Infusion Debenture 1992 45 4 *17% Chemical Debenture 1993 20% Convertible 20 5 *17% Beximco Synthetic Debenture 1993 375 6 17% Beximco Knitting Debenture 1994 20% Convertible 240 7 17% BeximcoFisheries Debenture 1994 120
Note: * marked debentures are not available at present. Source: SEC, DSE and CSE report.
7 17% BeximcoFisheries Debenture 1994 120 8 *15% Easterning Housing Debenture 1994 10% Convertible 800 9 14% BeximcoTextile Debenture 1995 240 10 14% BD Zipper Debenture 1995 20% Convertible 40 11 14% Beximco Denims Debenture 1995 300 12 14% BD Luggage Debenture 1996 20% Convertible 150 13 14% Aramit Cement Debenture 1998 20% Convertible 110 14 15% BD Welding Electrodes Debenture 1999 20 15 IBBL Mudaraba Perpetual Bond 2007 Profit Sharing 3,000 16 ACI Zero Coupon Bonds 2010 20% Convertible 1,070 17 Sub Bonds of BRAC Bank L 2011 25% Convertible 3,000 14
1.
Objectives of the research
2.
Sources of data
3.
Bond and bond market
3.
Bond and bond market
4.
Bond market in Bangladesh
5.
Constraints on development of bond market
6.
Findings and recommendations
7.
Conclusion
15
Limited number of investors Capital gain High return in risk free government bond High return in risk free government bond Alternative sources of debt financing Underdeveloped Tax system Weak regulations and market infrastructure
16
High interest rate Illiquid secondary market The high transaction costs of bond issuance Cheap syndicated loans Default on interest payment in early 1990s Inexperienced investors High inflation
17
Source 3－ － － －6 months 6mnths-1yr 1yr & above
State owned commercial banks 5.50－7.50 6.75－8.75 8.00－11.50 Specialized banks 5.75－7.25 6.00－7.50 6.75－9.00
Source: Bangladesh Bank .
Specialized banks 5.75 7.25 6.00 7.50 6.75 9.00 Private banks 7.00－12.75 7.25－13.00 8.00－11.75 Foreign banks 3.75－12.50 4.00－12.25 4.50－11.00 Post office NA NA 11.50 National savings certificates NA NA 12.00
18
1.
Objectives of the research
2.
Sources of data
3.
Bond and bond market
3.
Bond and bond market
4.
Bond market in Bangladesh
5.
Constraints on development of bond market
6.
Findings and recommendations
7.
Conclusion
19
Comparison of size of Bond Markets in Some Asian Countries , March
2011 (% of GDP)
Category Korea Mala China Sing Thailand Philip India Sri Pak BD Source: Asian Bond on Line, BIS, RBI. Category Korea Mala China Sing Thailand Philip India Sri Pak BD Government 48.8 48.1 46.1 41.2 40.7 33.3 36.1 31.6 27.5 17.1 Corporate 61.8 37.5 4.7 30.7 15.9 3.5 3.9
Finance Indicators for South Asian countries(2001-2011)
Individual indicators rank India Pakistan Sri Lanka Bangladesh Nepal
Overall rank 1 2 3 4 5
Source: Getting Finance Indicators
Note: Score from 1 to 5, with lower score (higher values) denoting better (poor) position.
Overall rank 1 2 3 4 5 Access to finance 3 4 1 2 5 Financial stability 1 2 3 4 5 Performance and efficiency 3 1 2 4 4 Capital market development 1 2 3 4 5 Market concentration and competitiveness 1 4 5 2 3
21
Indicators of Corporate Governance, South Asia, 2011
Country Voice& Accountability Political stability Government effectiveness Regulatory quality Rule of law Control of corruption Bangladesh
Source: South Asian Financial sector review.
Note: Governance score from -2.5 to +2.5, with higher (lower values) denoting better (poor) governance . Bangladesh
India +0.38
+0.03
+0.10
Pakistan
Sri Lank
+0.06
22
Establishing a sovereign yield curve to serve the pricing
guide in the bond market
Proving the government as a credible issuer and market Proving the government as a credible issuer and market
developer
Level playing field for foreign and retail investor Establishing a well-functioning system for primary dealers
23
Steps to enhance secondary market liquidity Increasing transparency in the secondary market through
dissemination of market information dissemination of market information
Introducing Delivery Vs Payment System (DVP) Developing Bond Index Developing qualitative strength
24
1.
Objectives of the research
2.
Sources of data
3.
Bond and bond market
3.
Bond and bond market
4.
Bond market in Bangladesh
5.
Constraints on development of bond market
6.
Findings and recommendations
7.
Conclusion
25
This report investigates the current status of bond markets
The
thin bond market in Bangladesh faces manifold
The
thin bond market in Bangladesh faces manifold challenges like excessive reliance
bank credit, government debt instruments dominated by primary auction based, absence of benchmark yield curve and lack of product variation.
26
The prerequisites of the bond market development and factors to
influence the bond market indicates that the neighbor countries have dramatically progressed in almost all the categories while Bangladesh does not meet most of the preconditions to develop an Bangladesh does not meet most of the preconditions to develop an efficient bond market.
momentum in the bond market if she adopts all viable strategies, experiences and reforms program of developed bond markets.
27
28