State of the Debt Market in Bangladesh GDP of USD 63 Bln Total Domestic Savings to GDP - 20.3% Of the Domestic Savings: Bank Deposits is 72% Debt Market is 28% Government 99% Treasury Bills 27% Treasury Bonds 14% Saving Schemes 59% Private Debt 1% Government Debt to GDP 47% Internal 17% External 30%
Salient Features Fixed Income Market is dominated by Bank deposit and loans Debt instruments are dominated by the Government Most activities are on the primary auctions Number of primary dealers – 9 Few debentures have been issued, otherwise corporate debt is almost non- existent Absence of a clearly defined yield curve –High Govt borrowing rate through the Savings Certificates Bank deposits are eroded through a sizeable non-performing loan portfolio held by the nationalized commercial banks Trading of private debentures is negligible due to the inferior quality of the instruments. Also, there is lack of product variations.
- The curve started shifting downward from Mar 03 - Bottomed in Feb 05 - Started to rise again from Mar 05 Shifts in Govt. Treasury Yield Curve
Challenges Absence of effective interest rate structure Almost no secondary trading of government debt instruments Weak governance institutions Overlapping role of the SEC and Bangladesh Bank Out-crowding effect from bad loan situation Dominance of NCBs Cumbersome information system Insignificant non-banking sector Absence of arbitration institutions Low effectiveness of Credit Rating agencies Absence of SEC guidelines on FIS
Roadmap Establish benchmarking and long term Yield Curve. Rationalization of the Interest Rate Structure whereby the Government borrows at the lowest possible rate to create a level playing field. Provide a Legal Framework of user friendly Rules & Regulations, conducive to the creation and development of an active market. Increase effectiveness of independent Credit Rating Agencies Develop and strengthen market intermediaries like primary dealers, investment analysts, investment / merchant banker’s etc. Expose pension and insurance funds to the debt market. Facilitate Securitization and issuance of Asset Backed Securities and Collateralized Loan Obligations. Improve Central Depositary and Electronics Settlement and Registration System. Upgrade Accounting and Disclosure Standards as well as Foreclosure Laws.