Bond market largely remains untapped

Despite having immense potential, bond market in the country still remains unexplored because of multiple factors, including weak corporate governance, lack of awareness and data transparency, poor investment-friendly tax structures and inadequate enforcement of regulations, experts at a roundtable said on Tuesday.
In the absence of sustainable long-term funding sources like bond market, the financing pressure on the country's banking system continues to grow, enhancing the risk of non-performing assets, they said.
To overcome the existing drawbacks, they suggested revamping the prevailing tax structure and bringing all the regulators and market intermediaries under the umbrella of a single authority before updating the rules and regulations in line with global best practices. These reforms, they said, will help attract both global impact investors alongside domestic ones.
The observations and recommendations came at the roundtable titled "The Evolution of the Bond Market in Bangladesh: Historical Context, Current Status, Challenges, Impacts and Way Forward". The Financial Express (FE) and WatermarkInc jointly organised the event where Commissioner of Bangladesh Securities and Exchange Commission Farzana Lalarukh was present as the chief guest.
In his keynote speech, Managing Director of UCB Investment Tanzim Alamgir noted that the ratio of the corporate bond market to GDP is only 0.19 per cent, the lowest among peer countries.
He said the country witnesses the highest yields in government treasury bonds hovering in between 12 per cent and 13 per cent. Under such circumstances, returns on corporate bonds taking the risk return concept into consideration should be around 17 per cent, which is probably not feasible, he added.
"I think it is time to fix the base and regulations in line with the global best practices so that we can work on promoting corporate bond once the yields of the treasury bonds come down below 8 per cent."
CEO of Brac EPL Syed Rashed Hussain, who moderated the event, said the scope of developing bond market is much higher than any other market available in the country now.
Bangladesh, as one of the worst climate vulnerable countries, could benefit significantly from sustainable bonds, a crucial component of sustainable financing having a global market size of $6.60 trillion, he said, adding that the country needs to formulate policies and regulations that will attract global impact investors.
Managing Director and Chief Executive Officer (CEO) of Prime Bank Investment Syed M Omar Tayub said the total bond market to GDP ratio is 11.63 per cent, with treasury bonds accounting for 11.45 per cent.
"That means we're talking about a market that, in fact, does not exist here," he said.
He said the ministry of finance needs to play a big role in formulating a proper strategy starting with the central bank's Monetary Policy Statement (MPS).
In the area of private sector credit growth projection in the MPS, he said, there must be a portion of credits coming from the bond.
Speaking as the chief guest, BSEC Commissioner Farzana Lalarukh said the debt and equity markets should be developed side by side.
She said investors would not face such a worse situation if there were a robust debt market. "Investors could offset their losses from equity investments riding on returns from fixed income securities."
The commissioner said a debt-equity ratio should be maintained by both companies and individuals.
At the programme, the discussants said the city corporations should reduce their dependency on government funds and municipal bonds should be a way of their financing.
In this regard, Managing Director of ICB Capital Management Mazeda Khatun said they spent a lot of time on motivating the city corporation to issue such bonds.
"But it did not yield any results as people in those organisations do not have any knowledge of bonds. So, awareness programmes should be launched at the city corporations," Mazeda Khatun said.
Mirza Mohammad Mamun Sadat, first secretary (tax policy) at National Board of Revenue (NBR), said the revenue board works as tax collector taking the business growth into consideration.
As the bond is an internal resource of fund mobilisation, a developed bond market could ease the pressure of tax collection.
"We want a proposal from the stakeholders on how the bond market can be developed further providing tax incentives," said Mr. Sadat.
In the opening remarks, Editor of The Financial Express Shamsul Huq Zahid said bonds that usually offer reasonable yields are considered a safe investment by knowledgeable savers.
A vibrant secondary market for transaction of both government and private bonds is urgently needed to meet the long-term investment needs of both sectors, he said.
"Unless and until investors' confidence is restored through reforms and other corrective measures, it may not be possible to achieve a vibrant bond market," he said. Director (debt management department) of Bangladesh Bank Istequemal Hussain said the central bank is working to develop the primary market, which will serve as the foundation for a secondary market.
Highlighting some positive responses in sukuk or Islamic bonds, he said there is significant demand in the market, but everyone needs to work collectively to bring back the confidence of investors.
Dr. Prashanta Kumar Banerjee, a professor of Bangladesh Institute of Bank Management (BIBM), said debt market needs to be well disciplined so that it can facilitate the growth of equity market.
Kazi Farhan Zahir, senior country officer of International Finance Corporation, and Bidyut Kumar Saha, senior investment officer of Asian Development Bank, among others, spoke at the programme.

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