BB to push private firms to capital market: governor

The Bangladesh Bank (BB) will push private firms to the capital market to ease the economy’s dependence on the banking sector and reduce non-performing loans (NPL), said the central bank’s governor, Ahsan H Mansur. He also called attention to improving the bond market as a financing source.

“They [firms] will not be pushed out of the banking sector fully. However, after a certain level of lending, they should not remain in the banking sector,” said Mansur yesterday at an event on bond market development held at the Renaissance Dhaka, organised by the BB and the Bangladesh Securities and Exchange Commission (BSEC).

He said measures will be taken to ensure that no one can exceed a bank’s single borrower limit. If more financing is required beyond this limit, firms can raise funds from the capital market, issue bonds to mobilise funds, or even borrow from abroad. Mansur suggested making it easier and faster to raise funds through bond issuance. Tax incentives may also be provided, he said.

However, work must also be done on the demand side so that when the private sector comes to raise funds, investors are ready to invest. To make the bond market vibrant, the government bonds must first be made attractive in the market. A stable macroeconomic environment is essential to strengthen the bond market, particularly with low inflation and low interest rates, the central bank governor said.

At the same time, regulators must be strict to ensure that no company defaults or delays payment of bond coupons. “Trust is extremely important for the bond market, and it must not be allowed to erode under any circumstances,” he stressed.

The governor said measures will be taken to ensure that no one can exceed a bank’s single borrower limit. If more financing is required beyond this limit, firms can raise funds from the capital market, issue bonds, or even borrow from abroad

If projects can be financed through bonds, it will reduce unnecessary pressure on the private sector. At present, if a project has a lifespan of 10 years, but financing is provided for only five years, it creates “impossible tension” and, in many cases, leads to NPLs, Mansur added.

BSEC Chairman Khondoker Rashed Maqsood said, “As long as entrepreneurs can easily obtain loans from the banking sector, they will not go to raise funds through the capital market or other channels.”

The capital market regulator already has several “colour bonds” in hand, and once approved, these will bring some diversification to the market, he said.

Dhaka Stock Exchange Chairman Mominul Islam said that the real-time gross settlement accommodation needs to be updated so that settlement time for bond transactions can be reduced. He also urged bond auctions to be conducted through the stock exchange to increase investor participation.

Mashrur Arefin, chairman of the Association of Bankers, Bangladesh, said that before pushing the private sector to reduce its dependence on banks, the bond market must be fixed first. Costs must be reduced, and the bond issuance process must be expedited.

He recommended providing capital treatment for proceeds of zero-coupon bonds for banks. To attract investors to the bond market, he also called for the introduction of a yield curve and dynamic valuation that investors can easily understand.

The BB and the BSEC must work together to make the bond market vibrant, said Mahbubur Rahman, president of the International Chamber of Commerce Bangladesh (ICCB). A vibrant bond market would reduce pressure on banks and also provide capital market investors with a new supply of securities, he added.

The government could establish an institution to provide guarantees for bonds, if necessary, with support from the Asian Development Bank, said Mahmood Osman Imam, a professor of Dhaka University. This step would reduce issuance costs for bond issuers. Overall, government support is needed to put the bond market on a solid footing, he added.

The BB and the BSEC have researched to develop the bond market at both the public and private levels in Bangladesh. Based on the findings of the research report, Ejazul Islam, director general of Bangladesh Institute of Bank Management, recommended that a “one-stop” service desk could be established at the central bank for purchasing government bonds, allowing anyone to buy bonds directly, both in person and online.