Tradable savings certificate on bond market

The liquidity crisis in banks stemming mainly from non-performing loans (NPLs) has long stoked the compulsion of exploring alternative sources of sustainable fund. Since foreign investment is hard to come by, the search for such alternative sources has become even more compelling. Now the Bangladesh Bank (BB) and business circle have hit upon the idea of making savings certificate tradable on the bond market so that corporate bodies can turn to the bond market for their financing needs. As reported from a seminar on 'Bond Market Development in Bangladesh: Challenges and Recommendations' held on Monday last, Bangladesh has a savings certificate market worth Tk6.0 trillion but, according to the BB governor, its size can be doubled if such certificates are made tradable on the market like the shares on the stock market. The capital market scams---not once but twice--- have left investors' confidence low and therefore the corporate credit needs can be met by pooling funds from tradable savings certificate.

There is nothing wrong with the rerouting of savings to productive sector provided that the task is done efficiently, guaranteeing security of the savings. Money does not grow automatically but only when it is made to roll for productive purposes. Bond market is as good as the robustness of the corporate world. In case of business slump, it also turns bearing like the stock market. People who invest money in savings certificates, unlike in the stock market, do so in good faith that the declared profit return is failsafe. A new dimension is added to the savings certificate with allowing it to be tradable on bond market. Infusion of savings certificates into this particular financing sector is expected to bring about quite a shift in the mobilisation of funds by private enterprises. The pressure on banks for funds will ease to some extent.

Corporate bodies with lower bond-market exposure will be encouraged to make their presence felt significantly in the bond market. The BB governor made it clear that the central bank will apply both push and pull factors to develop the bond market. In this connection, the BB will invite corporate bodies less exposed to bond market to a meeting to know about the latter's requirements for their active participation in the bond market. He adds that single borrower exposure limit must be respected. In that case, the corporate entities either have to 'go for overseas borrowing or look for bond and capital market'.

If the push factor does not achieve the target, a pull factor will be applied to encourage them for exploring the untapped potential of the bond market. Under the system, incentives like cutting the bond-issuing timeline and costs; and revisiting tax treatment may be considered. Clearly, things are yet to be streamlined enough but the initiatives will gradually make clear how the landscape of mobilisation of fund from such alternative sources can be achieved. In that case, the need for regular and competent oversight by the central bank will be of utmost importance. Given the deplorable experiences of the capital market, the trading of savings certificates on the bond market will have to go by the prescribed rules for ensuring its compatibility with the local business environment.