'Secondary securities market needs long-term institutional support'
Tuesday, 30 March 2010
Siddique Islam
Bangladesh needs to develop a long-term institutional investor base with a view to bringing in dynamism in its secondary securities market, a top official of the Standard Chartered Bank (SCB) said Monday.
Aniruddh Gupta, global head, Capital Market Solutions Group of SCB in an interview with the FE appreciated the increase in the number of primary dealers (PDs) but said that enhancing the number of PDs was not enough. A long-term institutional investor base is required to be developed, he said.
"The debt or fixed income capital market of Bangladesh is at a fairly nascent stage. A mature capital market requires a deep debt capital market", he said.
Lending by commercial banks provides valuable initial support for corporate growth; and a developed stock market provides opportunity for moving into a more mature growth phase with more sophisticated conglomerates, Mr. Gupta added.
"We think a vibrant capital market is likely to support a robust economy in Bangladesh. With real gross domestic product (GDP) growth of 6.0 per cent in 2009, the economy of the country has accelerated to an impressive level," the SCB top official noted.
Standard Chartered has a strong capital market team, which is continuously taking initiatives to develop the market.
"This team is now heavily involved in developing sovereign rating for Bangladesh. Also, we are working very closely with the regulators and are having continuous discussions with them on various development initiatives for the country," he added.
Regarding secondary bond market, the SCB official said active participation of non banking investors, like insurance companies, pension funds and other long term institutional investors is essential to develop a mature secondary bond market. "This should be guided by proper regulatory mechanism," he noted.
"Actually, the yield from government bonds would be lower than the yield from bank fixed deposits due to the credit risk issue," he said replying to a query.
However, the advantage is that government bonds offer longer tenors, which banks cannot offer, he said. "Bangladesh should improve the efficiency of the primary market for government bonds by gradually increasing the share of marketable government securities, thereby raising liquidity in the secondary market," he recommended.
Currently, three T-bills are being transacted through auctions to adjust the government borrowing from the banking system.
The T-bills have 91-day, 182-day and 364-day maturity periods.
On the other hand, four government bonds -- 5-year, 10-year, 15-year and 20-year -- are being traded in the markets.
Currently, two top global rating agencies, Moody's and Standard & Poor's, are working to prepare the country's first sovereign rating, which would be helpful to attract the foreign investors for investment in bonds.
Once the sovereign rating is published, more opportunities would be there for the foreign investors to know about the investment opportunities in Bangladesh, the SCB official said.
"If Bangladesh wants to raise funds from international market, we think offshore bond issuance can provide a long-term sustainable funding platform for the country," Mr. Gupta said, adding that the government can go for other methods like securitisation after successful issuance of bonds for external funding.
Introducing new products in Bangladesh definitely requires demands for such products in the market, he said, adding that suitability and appropriateness of a product in a particular market is the key issue in this regard.
"If a product fits, definitely we are ready to introduce it to this market. At present, we are working with the regulators for introducing some new products in Bangladesh," the SCB official noted.
Bangladesh needs to develop a long-term institutional investor base with a view to bringing in dynamism in its secondary securities market, a top official of the Standard Chartered Bank (SCB) said Monday.
Aniruddh Gupta, global head, Capital Market Solutions Group of SCB in an interview with the FE appreciated the increase in the number of primary dealers (PDs) but said that enhancing the number of PDs was not enough. A long-term institutional investor base is required to be developed, he said.
"The debt or fixed income capital market of Bangladesh is at a fairly nascent stage. A mature capital market requires a deep debt capital market", he said.
Lending by commercial banks provides valuable initial support for corporate growth; and a developed stock market provides opportunity for moving into a more mature growth phase with more sophisticated conglomerates, Mr. Gupta added.
"We think a vibrant capital market is likely to support a robust economy in Bangladesh. With real gross domestic product (GDP) growth of 6.0 per cent in 2009, the economy of the country has accelerated to an impressive level," the SCB top official noted.
Standard Chartered has a strong capital market team, which is continuously taking initiatives to develop the market.
"This team is now heavily involved in developing sovereign rating for Bangladesh. Also, we are working very closely with the regulators and are having continuous discussions with them on various development initiatives for the country," he added.
Regarding secondary bond market, the SCB official said active participation of non banking investors, like insurance companies, pension funds and other long term institutional investors is essential to develop a mature secondary bond market. "This should be guided by proper regulatory mechanism," he noted.
"Actually, the yield from government bonds would be lower than the yield from bank fixed deposits due to the credit risk issue," he said replying to a query.
However, the advantage is that government bonds offer longer tenors, which banks cannot offer, he said. "Bangladesh should improve the efficiency of the primary market for government bonds by gradually increasing the share of marketable government securities, thereby raising liquidity in the secondary market," he recommended.
Currently, three T-bills are being transacted through auctions to adjust the government borrowing from the banking system.
The T-bills have 91-day, 182-day and 364-day maturity periods.
On the other hand, four government bonds -- 5-year, 10-year, 15-year and 20-year -- are being traded in the markets.
Currently, two top global rating agencies, Moody's and Standard & Poor's, are working to prepare the country's first sovereign rating, which would be helpful to attract the foreign investors for investment in bonds.
Once the sovereign rating is published, more opportunities would be there for the foreign investors to know about the investment opportunities in Bangladesh, the SCB official said.
"If Bangladesh wants to raise funds from international market, we think offshore bond issuance can provide a long-term sustainable funding platform for the country," Mr. Gupta said, adding that the government can go for other methods like securitisation after successful issuance of bonds for external funding.
Introducing new products in Bangladesh definitely requires demands for such products in the market, he said, adding that suitability and appropriateness of a product in a particular market is the key issue in this regard.
"If a product fits, definitely we are ready to introduce it to this market. At present, we are working with the regulators for introducing some new products in Bangladesh," the SCB official noted.