Vibrant bond market needed to curb NPLs: FBCCI

The government should declare that it will develop the bond market on a priority basis to reduce the pressure on banks for long-term financing, bring down non-performing loans, and provide people with a low-risk investment tool, according to business leaders.

Developing the bond market would also help finance the huge amounts of investment the public and private sectors will need in the coming years, they said.

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These views came at a seminar, styled "Bond Market: The Ultimate Solution for Long-term Financing", organised by the Federation of Bangladesh Chambers of Commerce and Industry (FBCCI) at its premises in Dhaka yesterday.

The stock market is only composed of equities, but a developed bond market is much needed to diversify the investment tools available, said Salman F Rahman, the prime minister's adviser on private industry and investment affairs.

"So, the government has taken the initiative to make the bond market vibrant," he added.

Rahman said raising awareness of the benefits and ensuring good prices are crucial for making the bond market popular.

"If the bond market becomes popular, the dependence on banks for funding will decrease. This will minimise the risk of NPLs, which is one of the biggest challenges in the financial sector," said FBCCI President Md Jashim Uddin.

Bangladesh currently lacks long-term financing sources as it is tough for banks to provide such loans as they deal with short-term deposits.

"So, the bond market can be an effective solution for long-term financing," he added.

Prof Shibli Rubayat-Ul-Islam, chairman of the Bangladesh Securities and Exchange Commission (BSEC), said perpetual bonds have already been introduced in the stock market.

"When other bonds become available, they will be more popular among investors," he added.

Islam went on to say that the International Finance Corporation has expressed interest in introducing a bond of $4 billion in Bangladesh.

In addition, the BSEC plans to allow more bonds for women entrepreneurs, small and micro entrepreneurs, and new entrepreneurs, he said.

The bond market in Bangladesh is still very small as it accounts for only 8 per cent of the country's gross domestic product, which is much lower than most neighbouring nations, said Arif Khan, vice-chairman of Shanta Asset Management.

The bond market also has significant importance in financing government projects and the national budget, ensuring long-term financing for companies, better NPL management, and lucrative investment options for investors, he added, while presenting a keynote at the seminar.

The huge time required to issue a bond, the fluctuation in bank interest rates, and excessive regulations on trustee registration are marked as obstacles in the bond market.

Bonds currently have a minimum transaction requirement of Tk 100,000 in the capital market with a transaction fee of Tk 1,000.

"So, the lot size should be reduced along with the transaction fee," Khan said.

Khan said a holistic approach is needed to promote the bond market, the development of which should be a priority work for the finance ministry.

"Also, an effective benchmark yield curve is needed while the time needed to issue a bond should be reduced."

Mostofa Azad Chowdhury Babu, senior vice president of the FBCCI, Shuvra Kanti Choudhury, managing director and CEO of Central Depository Bangladesh Ltd, Richard D' Rozario, president of the DSE Brokers Association of Bangladesh, Mohammed Nasir Uddin Chowdhury, a former president of the Bangladesh Merchant Bankers Association, Shakil Rizvi, a director of the Dhaka Stock Exchange, and Amzad Hussain, chairman of the stock market and bond-related standing committee of the FBCCI, also spoke at the event.