Not so dynamic but promising

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Bangladesh needs a vibrant bond market to meet its huge financing needs for infrastructure development and further industrialization

October 19, 2021, 10:25 a.m.

Last modification: October 19, 2021, 12:48

Aroka Chowdhury

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Aroka Chowdhury

Bangladesh, one of the fastest growing economies in the world over the past decade, has an impressive record of growth supported by a demographic dividend, strong ready-to-wear (RMG) exports and stable macroeconomics.

However, like other countries, Bangladesh has faced the daunting challenge of fully recovering from the Covid-19 pandemic which has limited economic activities and reversed some of the gains made over the past decade.

Nonetheless, after battling two deadly waves of Covid-19, Bangladesh’s economy is showing signs of recovery supported by a rebound in exports, strong remittances and the ongoing mass vaccination program.

With the promise of being a developed nation by 2041, Bangladesh has undertaken many infrastructure projects such as: Padma Multipurpose Bridge, Padma Railway Bridge, MRT Lines 1 and 6, Project of coal-fired electricity from the Rooppur nuclear power station, Matarbari, etc.

In order to maintain the stability of the economy and to implement various projects, it is important to ensure the presence of short and long-term sources of funding. Therefore, it is quite understandable that Bangladesh needs a vibrant bond market immediately to meet its huge need for financing for infrastructure development and further industrialization.

Illustration: SCT

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Illustration: SCT

Illustration: SCT

According to the Capital Markets Fact Book of July 2021, the size of the global bond market is currently $ 124 trillion, while the size of the global stock market is $ 106 trillion in 2021. The size of the bond market of neighboring countries like Malaysia, Indonesia and Pakistan amounted to $ 345 billion, $ 233 billion. and $ 66 billion respectively while the Bangladesh bond market (both treasury bills and corporate bonds combined) currently stands at $ 18 billion. Undeniably, Bangladesh lags behind most developing economies in terms of the size of the bond market.

The absence of a dynamic bond market in Bangladesh places a heavy burden on bank financing. Banks depend on short-term deposits to conduct their operations. So when they make long term loans with short term deposits, it puts pressure on their cash management which ultimately leads to a serious mismatch between assets and liabilities.

Looking at the Bangladesh bond market, we can see that it is a small market and that it is heavily dominated by government debt securities and capital bonds issued by banks and financial institutions (IF ) non-banking.

Banks and FIs issue capital bonds to meet regulatory requirements and to strengthen their capital base. Companies also issue the ZCB or Coupon Bearing Bond but the percentage is still very low.

Fortunately, the situation improves over time thanks to the proactive and collaborative approach of regulators and relevant stakeholders. Most recently, the country’s first Sharia-compliant bond, the Bangladesh Government Islamic Investment (Sukuk), attracted investor applications more than eight times in the final phase of the auction. The fund was raised for the implementation of the government project to supply drinking water for the whole country. The oversubscription clearly shows the interest and curiosity of stakeholders towards this new financial instrument.

In addition, Bangladesh also entered the era of green bonds in 2021 with the approval of its first green bond to finance environmentally friendly projects, including renewable energy. Bangladesh Securities and Exchange Commission (BSEC) has approved a non-governmental organization (NGO) named Sajida Foundation to raise funds in the capital market by issuing green bonds.

Along with the introduction of innovative solutions to create incentives, especially for the private sector, to promote inclusive development finance, Bangladesh has also started working with Blue Bond. The blue bond is a new concept and therefore there is still a lack of awareness and expertise in this area.

In addition, the Bangladesh Securities and Exchange Commission (BSEC) issued a rule on debt securities in 2021 and subsequently, more than 10 banks applied for a perpetual bond and a subordinated bond. Previously, BSEC had authorized 11 other banks to issue these BASEL III compliant AT-1 bonds. Perpetual bonds are a new inclusion in this market as it was previously very dominated by subordinated bonds issued by banks.

The size of the debt instrument is 0.25 times the equity in the Bangladesh capital market and the total size of debt issued since 2013 is approximately $ 3.9 billion in face value. This ratio should improve in the future given the proactive approach of regulators and the interest of stakeholders.

There is no doubt that we have already taken a first step towards developing a vibrant bond market as an alternative source of funding, but we still have a long way to go. Financial literacy is essential in this regard to overcome barriers associated with development. If we ourselves are not sufficiently motivated to diversify our investment in FDRs, bonds or any other financial instrument, we cannot expect others to do the same.

Our regulators work hard to develop the market with the help of numerous roadshows and financial literacy programs at home and abroad. It is now our job to work with them and make it work for the good of growing our economy.


Aroka Chowdhury ACMA, CGMA is currently working in an investment bank in Bangladesh. Email: [email protected]


Disclaimer: The views and opinions expressed in this article are those of the authors and do not necessarily reflect the opinions and views of The Business Standard.


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