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Tuesday, June 7, 2016, Jaistha 24, 1423 BS, Ramadan 1, 1437 Hijri


Talking On Banking
Muhith didn't keep his promise to primary dealer banks and FIs
Faruk Ahmed
Published :Tuesday, 7 June, 2016,  Time : 12:00 AM  View Count : 96

Primary dealers are unhappy with the National Budget for the fiscal year 2016-17 placed by Finance Minister AMA Muhith. Some money dealers said the finance minster has ignored the long ailing demands of 14-member Primary dealers Bangladesh limited (PDBL), the apex body of 15 primary dealers banks and FIs to develop a sound and vibrant bond market- the government's prime agenda to accelerate the growth toward the target level.
 But Mr. Muhith has frustrated the PDBL members keeping the interest rates of saving instruments at high levels which is harmful to the growth of bond market. The learned finance minister knows it well and in several occasions earlier, he promised the market players to cut down the interest rates and assured the multi-donor agencies and financiers to introduce more bonds. But the budget didn't reflect this.
And this is the main reason for banks and non banking financial institutions to become frustrated. In the budget, the finance minister has cut down the upfront tax on interest income of treasury bond and treasury bill to 5.00 per cent from 10 per cent keeping interest rates of all saving instruments at their high levels. None of the 221 treasury bonds listed with the capital market has been trading at the Dhaka and Chittagong stock exchanges for years due mainly to the tax burden.
But the market situation is not conducive to market players including primary dealers who are promised to develop a sound and vibrant secondary market for bonds when the money market is over flooded with a huge amount of liquidity. This has encouraged the central bank to cut its base rates in recent days- Reverse repo rate to 4.25 per cent from 5.25 per cent and repo rate to 6.75 per cent from 7.25 per cent. The call money remains at its lowest level between 3.00 per cent to 6.00 per cent as credit demand from private sector is very low since long. Low interest rate of T-bills and T-bonds was the key reason for low investment in the government securities.
Development of a sound and vibrant debt market depends on development of a well functioning financial markets including money market, government's securities market and money market is very crucial. The debt market being an integral part of financial market plays a complementary role in developing economy through allocation of funds to the different deficit sectors.  But the size of domestic debt is very small-accounted for only 20 percent of the financial system. Bangladesh's bond market represents the 'smallest' in South Asia, accounting for only 12 per cent of the country's gross domestic product (GDP), a World Bank report said. "It is surprising that Bangladesh, which is much larger than Nepal in terms of population, land area and other measures, has the smallest bond market in the region".
Like in any other country, Bangladesh needs a well-developed tradable bond market to ensuring stability and efficiency of the financial market and managing public debt and bank liquidity that are urgent to conduct monetary policy efficiently. It is also the long ailing demand of Bangladesh Leasing and Financial Institutions Companies Association (BLFCA), the apex body of 33 non banking financial institutions which are struggling to survive with high cost of funds.
Here the roles of primary dealer banks should also come under scrutiny. General investors mostly people do not know about the potentiality of the bond market and also do not have full confidence in the private sector bond as few corporate debentures are in default without any legal or moral recourse to the investors
So, it is a big challenge for the finance minister to develop a secondary market for bond for a well functioning debt market. And the 83-year old finance minister knows it well. In many occasions, he assured market players to take necessary measures in this regard. Even he forgot his promise to the IFC during a meeting that he would issue more bonds including taka bond for global investors. IFC officials for South Asia made the proposal to the finance minister at the World Bank headquarters in Washington when Mr Muhith responded to the proposal with a solid promise. "We'll start work on that immediately to issue more bonds and extend necessary supports to develop the bond market. The bonds will be issued as soon as possible".
So, banks and non banking financial institutions expected some more measures that are necessary to prop up the bond market development in the new budget placed before the parliament members. Particularly, primary dealers banks and FIs expected that the finance minister would at least cut interest rates of saving certificates, facilitate fiscal supports to corporate bodies to issue bonds and announce more issuance of government's bonds that are urgent to develop a sound and vibrant bond market in Bangladesh.










Editor : Iqbal Sobhan Chowdhury
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