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Capital market development

ADB pushes for policy actions

Rezaul Karim | May 20, 2019 00:00:00

The ADB has attached some conditions, including the approval of the proposed organogram of the securities regulator, to the release of the second tranche of $170 million for the Third Capital Market Development Programme (CMDP3).

Several pending policy actions under the CMDP3 have to be implemented by May 31 to receive the second tranche of the capital market reform funding, it said.

The policy actions are the approval of the organogram of the Bangladesh Securities and Exchange Commission (BSEC), issuance of risk-based capital rules for intermediaries (including capital restructuring plan), Sukuk rules and derivative rules, issuance of rules for short-selling, installation of a new information and communications technology (ICT) procurement plan and endorsement of the draft asset investment rules for life and non-life insurance companies.

During a visit to Dhaka from April 29 to May 02 last, an ADB review mission clearly mentioned that the seven pending policy actions have to be fully implemented by May 31 to ensure the release of the second tranche of the programme.

The Manila-based lender also observed some progress in compliance on the policy actions. It called for making further progress in the pending policy actions.

It also urged the Financial Institutions Division to endorse the draft asset investment rules for life and non-life insurance companies by May 31 and send it to the law ministry urgently for vetting.

"During the last mission on February 18-20, eight policy actions were not in full compliant. Since then, the mission observed some progress in policy action compliance," the lender said in a note.

The BSEC has made progress in the five TA-dependent policy actions (i.e. risk-based capital rules, ICT, sukuk, derivatives and short-selling) as per the reverse clock set during the last mission and these five policy actions are expected to be completed by May 31, 2019, according to the mission's findings.

"A new BSEC organogram, however, has not been endorsed by the Ministry of Public Administrations (MOPA) and thereafter other approval steps will need to be gone through, including the Cabinet Secretary Committee's review and Prime Minister Office's (PMO) final approval," it said in its note.

The ADB apprehended that this policy action is not likely to be fully complied before the programme expiry date of June 30, 2019, according to the review mission's aide memoire.

The new organogram of the BSEC, a policy action, was returned by the ministry of public administration in mid-January this year. The BSEC again submitted the organogram to the ministry concerned later.

Contacted, BSEC Chairman Dr M Khairul Hossain said the work to implement the pending policy actions, including the approval of the BSEC organogram, was going on.

He also said he is hopeful of fully implementing the new organogram within a couple of months.

The Insurance Regulatory and Development Authority (IDRA) resubmitted the draft asset investment rules for life and non-life insurance companies to the Financial Institutions division of the Finance Ministry in mid-April.

Contacted, IDRA Member Gokul Chand Das said the draft asset investment rules for insurance companies was still awaiting approval by the ministry concerned.

Meanwhile, the Financial Institutions Division and the BSEC requested for a further loan and extension of TA beyond June 30, 2019.

The ADB mission reiterated the importance for the government to continue to demonstrate further progress in pending policy actions before the government submits a second extension request in early June for the ADB management's consideration in advance of June 30, the ADB mentioned in the note.

The mission also strongly requested the government to achieve several pending actions before May 31 2019.

The lender thinks that achievement of pending policy actions would demonstrate an advanced level of commitment and ensure buy-in from relevant authorities that the second tranche release can be made within a short and predictable extended period from June 30, 2019.

Meanwhile, the Bangladesh Bank (BB) issued Floating Rate Treasury Bond (FRTB) on March 25, 2019. The tenure of the bond is three years and the auction amount is Tk 5.0 billion.

The ADB mission also observed that some primary dealers were not interested in having FRTB in their investment portfolio and intentionally bid at high rates to be rejected by the government.

A high official of the Financial Institutions Division (FID) expressed hope that the pending policy actions will be implemented as early as possible.

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