Many financial experts wished to see a vibrant bond market in Bangladesh. They feel disappointed when they find it has not yet taken off. This writer, however, thinks that under the present situation bond market will not take off anytime soon.
The reasons for which the bond market did not take off in the past, are still there. The bond market is not open, and prices of the financial instruments, called bonds, are not determined through open competition. At present, the bond seller is the Bangladesh Bank, albeit on behalf of the government and the buyers are the financial institutions, specially the banks which are also the clients of the former. Sole issuer of the bonds is the government of Bangladesh, and the Bangladesh Bank acts as the agent on behalf of the government. The government sells the bonds for money it needs for financing its own projects and giving credits to other government-owned enterprises and institutions. The banks are interested to buy the so-called secured bonds because they have idle money. Besides, the bonds constitute a part of the required statuary reserves - the compulsory percentage of the deposits the commercial banks are to keep with the central bank. The commercial banks buy the bonds from the auction market arranged by the Bangladesh Bank. Normally the banks buy them at discounts, and on maturity they receive back the capital at par values. The banks can also surrender the same before maturity to the Bangladesh Bank, but the return will then be less than par values. As this writer understands, the banks also can sell the bonds to other banks in the interim period if they need money, but there too they are to receive less of returns.
Elsewhere in the world selling and buying of bonds normally take place at over-the-counter (OTC) market. There is no open competition among many players, nor is there a continuous market for the bonds. We do not see in Bangladesh any bonds issued by the city corporations or local government bodies. There is neither any corporate bond. As different kinds of bonds are not there, different kinds of customers are not also there, and as such, there is no bond rating agency in the economy. In the mature market of the west and even in many of the emerging economies, corporate bonds occupy a big segment of the financial market. In those economies, savers or investors do not receive the so-called fixed incomes called interests from the deposits with the commercials banks, but they receive the same from the holding of the bonds. There are many types of bonds, normally issued by the corporations or the companies which need medium to long-term capital, and these bonds also carry risks of different degrees for the investors who weigh them before they decide to invest.
An array of financial instruments is available to the investors of the mature and selected emerging economies. They can opt for common stocks, preferred stocks, derivatives, mutual funds, and also for different kinds of bonds. Alternatively, they can go for gold and gem holdings - and also currency holdings. The reality is that, most of the investors opt for more than one kind of investment instruments or go for cross-holdings. They have many options to shape up their portfolios with assets.
Unfortunately, such options are not simply available to the investors in Bangladesh. For reasons best known to themselves, the corporate entities in Bangladesh are not interested to issue fixed or variable interest-bearing bonds for public subscription. Not a single non-bank corporate bond is listed with the stock exchange in the country. The investors do not find any bond segment in the stock exchange or anywhere in the whole of financial market.
This writer understands that, so long as borrowing from the banks for medium to long-term capital requirement remains open and cheap, the corporate houses will not bother to issue corporate bonds. The investors are also sceptical about the honesty of corporate houses. A few corporate houses that issued fixed or variable interest-bearing debentures or bonds failed to live up to their commitments. At the end, though individual debenture holders got back the money, the institutional investors had to forgo a part of their receivables.
This writer thinks that the bond market is not coming up in Bangladesh as the investors here want more of return which is possible from equity investment only. On the other hand, there are investors who are too much of risk-averse in nature and want fixed interest incomes from deposits with the banks. Unless the stock market is further deepened and strengthened with supply of more of quality stocks and new financial products like derivatives, the bond market, even if it becomes open, will not take off or become operational in the real sense.
The writer is a Professor of Economics at the
University of Dhaka. [email protected]
