The International Finance Corporation (IFC) has found scores of potential local and foreign financial institutions having an interest in Bangladesh's climate-smart green bond.
In a study done jointly with the Bangladesh Bank, IFC has also identified 12 types of barriers to the growth of green bond market here.
"Local commercial banks and asset management companies are the domestic institutions with the highest potential to invest in green bond," said the sister concern of the World Bank.
In a draft study report, IFC said investors with higher assets under management and a higher share in fixed income will be more likely to invest in green bond.
It said City Bank and BRAC Bank have high assets under management at Tk 330 billion and Tk 360 billion respectively.
"This is an order of magnitude higher than other domestic investors," reads the IFC report.
It has also named three asset management companies-LR Global AMC, VIPB AMC and LankaBangla Finance-who have relatively high potential to invest in green bond.
"Considering there are relatively few opportunities to invest in fixed-income assets in Bangladesh as bond market is still nascent, this could suggest there is suppressed demand from these asset managers."
According to the study, three global institutional investors-PIMCO, BNP Paribas and HSBC-can also be the potential investors for Bangladesh's green bond.
NN Investment Partners and Ostrum Asset Management, which have a distinct focus on long-term sustainability and are signatories to the UN principles of responsible investment, are also prospective investors.
IFC also termed asset managers Amundi, Robeco, Nikko Asset Management and Lombard Odier highly potential as investors having dedicated green bond funds.
It said Bangladesh's economy is set to reach $274 billion, but the fixed-income market still remains small and underdeveloped.
The country's bond market reached $16 billion or 6.0 per cent of gross domestic product (GDP) in 2018 while Indian bond market is 16 per cent of GDP.
IFC estimated that the total climate-smart investment potential in Bangladesh might stand at $172 billion between 2018 and 2030. This shows a bright future of the local green bond market.
The study, however, said the green bond potential issuers in Bangladesh are relatively limited in number.
Fifty-nine scheduled banks, 34 non-bank financial institutions, treasury bonds and bills, and multiple non-financial corporates can issue green bonds here.
But the study cited high taxes and regulatory barriers, unclear project pipeline, poor access to investors, high transaction costs for issuers as barriers.
The bottlenecks include competition with fixed-income products and other non-green projects, it mentioned.
Poor credit rating and management capacity, regulatory restrictions, excessive currency and country risk, unclear green impact and evidence of alignment of nationally determined contributions, among others, retard green bond growth.
Honorary professor Abu Ahmed of Dhaka University earlier said Bangladesh must stop long-term financing from banking sector before launching a bond market.
"If state-owned banks come up with green bonds, I believe both local and foreign investors will subscribe to," he told the FE.
"But the rate of interest must be a little bit higher than that of fixed deposit receipt (FDR) in banks," suggested Mr Ahmed.
Laying emphasis on making the bond market active, he said the government should issue some bonds first to evaluate public response.
Large corporate bodies with fame and fortune, and private banks and financial institutions can also launch bonds, Mr Ahmed stated.
In the global perspective, he said, corporate bonds secure top position compared to others.
