The state of the country's capital market, particularly its development over the years amidst bumps, jerks and jolts, is quite unsavory. Equities, with marked upswing and downswing in their prices, defying, at times, rational factors and fundamentals of the listed issues, are its predominant feature. Bonds, particularly those issued by companies or corporates, are largely conspicuous by absence in the market. That is one factor, among others, for which the capital market is still lacking in depth. Businesses are shy of issuing bonds and continue to depend instead on banks for meeting their medium-or long-term investment financing needs.
This is no comfortable situation for banks to bear with, for long; there should be a reasonable limit for banks to lend their funds as long-term credits, taking the nature and mix of deposits that are kept with them, into consideration. Any mismatch between the tenure of their deposit structure and the nature of their lending operations can put the banks under strains, impacting their asset-liability management and advance/deposit ratios. This is more so in a situation where non-performing loans (NPLs) remain at a high level, and continue to swell. The financial sector in Bangladesh is now facing this problem. For this, promotion and encouragement of corporate bond issuance in the capital market can be considered a preferred option to facilitate the use of banks only as interim bridge financing windows, thereby avoiding their unduly high medium-or long-term investment financing exposure to corporate borrowers.
Against their backdrop, the observations by an International Finance Corporation (IFC) diagnostic mission, as reported in this paper last Monday, about the weaknesses of the Bangladesh capital market merit attention. The IFC is the private sector lending-arm of the World Bank (WB). Its team, having a broader perspective of the issue in view of IFC's varied experiences in most developing economies, is reported to have noted that the country's environment is "not conducive" to issuance of debt instruments by businesses for meeting their long-term financing needs. This has been stated in an aide-memoire last month on capital market development in Bangladesh. The Bangladesh Securities and Exchange Commission (BSEC), the relevant watchdog, needs to review the findings of the IFC team, keeping in view the ground realities, in order to assess the situation and do the needful at the earliest for removal of the hurdles to long-term debt issuance. Higher issuance cost, regulatory overkill, lax governance-related performance, structural constraints of the capital market etc., have been cited by the IFC team as the reasons for lack of progress in setting the basics right for a well-functioning bond market.
A vibrant stock market itself is a priority here. The BSEC has the most important role in deepening and diversifying the activities in the country's capital market. It is high time for this watchdog to be pro-active, more in actions than in words, to help create space for corporate bonds. The country's stock markets are still relatively small and heavily equity-driven. They badly need dynamism. This is more so now, because the capacity of the banks is being narrowed by circumstantial factors to provide long-term finance. Promotion of long-term debt intermediation through the capital market, outside the banking sector, should thus brook no delay.
The central bank, as the monetary watchdog, has so far concentrated its efforts on strengthening the market infrastructure, underpinning government securities like Treasury Bonds, Treasury Bills etc., But the bond market that the economy needs now most is the one that can help to mobilise funds for meeting the long-term financing requirements of investment projects, particularly in the private sector. Development of this market will largely depend on a synergy of actions, on the basis of an objective scrutiny of all the relevant issues, in order to ensure proper collateralisation and securitisation of such bonds as much as liquidity of related instruments.
