Banks are facing difficulties in calculation over government-approved securities as the central bank has amended rules allowing the on-cash-basis accounting method instead of the accrual basis method.
On May 26 last, the Bangladesh Bank (BB) amended its rules relating to the 'marking to market system' to infuse dynamism into the country's secondary market for government-approved securities.
The 'marking to market' or 'mark to market' system is a process of calculation to determine the market value of an asset.
The newly-formed Primary Dealers Association of Bangladesh (PDAB) has already urged the central bank governor to clarify, omit and amend some points of the rules.
The central bank will sit with the representatives of primary dealers (PDs)-eight banks and a financial institution-tomorrow (Tuesday) to discus the matter, officials said.
"We will meet the banks and the non-banking financial institution (NBFI) to know how to face the problems relating to calculation of their income from the government securities," a senior BB official told the FE Sunday.
He also said the central bank has amended the rules relating to the 'marking to market system' aiming to bring dynamism in the country's secondary securities market.
Under the amendment, the banks possessing government-approved securities in the 'held to maturity (HTM)' and 'held for trading (HFT)' forms will be allowed to use the bonds to meet their statutory liquidity requirement (SLR) with the central bank.
Earlier, the banks used to meet their SLR requirement with only HTM bonds.
The instructions came into effect on July 1, 2008.
The instructions said securities in the HTM form should generally be held till maturity. Amortization of these securities should be completed at the yearend and any increase or decrease arising out of amortization should be counted under the capital head and submitted to the department of offsite supervision in the prescribed structure within the stipulated timeframe.
'We're facing difficulties in complying with the instructions in absence of any coupons of the securities,' a senior member of the PDAB told the FE, adding that the accounting treatments arising from the increase or decrease of values of the securities are not clearly stipulated.
He also sought clarification on the treatment of coupon.
"We've recommended calculating the amortization of discounts and premiums in the profit and loss account in line with the international standards," the PDAB member added.
He also said the banks will have to inject fresh funds for the government securities to meet their capital requirement if the existing calculation rules are maintained.
On the other hand, another BB official said that the central bank issued the instructions with a long-term vision in the country's banking sector, particularly in the Basel II framework era.
Earlier, the BB selected nine PDs - eight banks and a non-banking financial institution (NBFIs) - to handle government-approved securities in the secondary bond market and issued a guideline for them.
The PDs will subscribe and underwrite primary issues and make secondary trading deals with two-way price quotations.
A PD will not short-sell any particular issue and will not hold a short position in secondary dealings. The PDs will not act as interbank or inter-dealer brokers as specified in the guideline.
Amended rules create trouble for banks over bond calculation
Siddique Islam | Published: August 04, 2008 00:00:00 | Updated: February 01, 2018 00:00:00
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