Examination Committee:

Dr. Arun Kumar Gopalaswamy (Chairman)

Prof. I. M. Pandey (Co-chair)Prof. I. M. Pandey (Co-chair)

Dr. Sundar Venkatesh

Presented by

Md. Abid Hossain

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Agenda

1. Objectives of the research

2. Sources of data

3. Bond and bond market3. Bond and bond market

4. Bond market in Bangladesh

5. Constraints on development of bond market

6. Findings and recommendations

7. Conclusion

2

Agenda

1. Objectives of the research

2. Sources of data

3. Bond and bond market3. Bond and bond market

4. Bond market in Bangladesh

5. Constraints on development of bond market

6. Findings and recommendations

7. Conclusion

3

Objectives of the Research

Main objective – To contribute to develop an effective bond in

Bangladesh.

The specific objectives :

� To get an overview and specific features of bond market in Bangladesh.� To get an overview and specific features of bond market in Bangladesh.

� To identify the impediments/ constraints and to tackle the problems in

order to enhance the development of bond market and

� To make recommendations for the developments of the bond market.

4

Agenda

1. Objectives of the research

2. Sources of data

3. Bond and bond market3. Bond and bond market

4. Bond market in Bangladesh

5. Constraints on development of bond market

6. Findings and recommendations

7. Conclusion

5

Data SourcesPrimary Data- Interviews and discussion with some key personnel of Bangladesh Bank( BB),

Securities and Exchange Commission (SEC), and Dhaka Stock Exchange (DSE).

Secondary Data

� Central Depository Bangladesh Limited (CDBL).

� Debt Management Department, Bangladesh Bank (BB).

Research publications from Policy Analysis Unit, BB. � Research publications from Policy Analysis Unit, BB.

� Economic Relations Division, Ministry of Finance, Government of Bangladesh(GOB).

� Finance Division, Ministry of Finance, GOB.

� Donor publications.

� Government publications.

� Newspaper clippings.

� Website materials.

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Agenda

1. Objectives of the research

2. Sources of data

3. Bond & bond market3. Bond & bond market

4. Bond market in Bangladesh

5. Constraints on development of bond market

6. Findings and recommendations

7. Conclusion

7

Simplified form of financial market

Financial Market

Capital market Money MarketCapital market

( Provide long term financing of more than

one year)

Stock Market Bond Market

Money Market

( Provide short term financing of less than one year)

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Bond- Definition

� A bond is debt instrument issued for a specific period for the purposeof raising capital by borrowing.

� In other words, a bond is fixed interest financial instrument issued bygovernment, corporate, and other large entities.government, corporate, and other large entities.

� Bonds are tradable and basically the price of a bond depends on theexisting interest rates in the market for an equally risky instrument andthe coupon on the bond.

� Thus a bond is like a loan: the holder of the bond is the lender(creditor), the issuer of the bond is the borrower (debtor), and thecoupon is the interest.

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Types of Bonds

Issued by

T-bonds( more than 10 year)

T-notes (more than 1 year and less than 10

Bonds

Issued by government

T-notes (more than 1 year and less than 10

year

T-bills(less than 1 year)Municipal

bonds

Corporate bonds

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Prerequisites for Development of Bond Market

Prerequisites for establishing an efficient bond market include:

� sound monetary and fiscal policies;

� stable and credible government; � stable and credible government;

� secure and smooth settlement arrangements;

� effective legal, tax, and regulatory infrastructure; and

� a liberalized financial system with competing intermediaries.

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Agenda

1. Objectives of the research

2. Sources of data

3. Bond and bond market3. Bond and bond market

4. Bond market in Bangladesh

5. Constraints on development of bond market

6. Findings and recommendations

7. Conclusion

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Bond Market in Bangladesh

� Currently bond market plays a limited role in the Bangladesh economy.

� The bond market is very small compared to the neighboring countries.

� End of 2010, the outstanding bond volume per GDP was only 15%, compared to � End of 2010, the outstanding bond volume per GDP was only 15%, compared to

India (40%), Sri Lanka (35%), Pakistan (31%), and Nepal (10%).

� The share of the Bangladesh bond market among South Asian countries was

only 2%, the smallest among the five countries.

� Government should initiate measures to improve the scope of bond markets in

Bangladesh.

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Corporate Debt Securities in BD

Sl no. Debt Securities Year of Issue Features Size(BDT Million)

1 *17% Beximco Pharma Debenture 1988 20% Convertible 40

2 *17% Beximco Limited Debenture 1989 60

3 *17% Beximco Infusion Debenture 1992 45

4 *17% Chemical Debenture 1993 20% Convertible 20

5 *17% Beximco Synthetic Debenture 1993 375

6 17% Beximco Knitting Debenture 1994 20% Convertible 240

7 17% BeximcoFisheries Debenture 1994 120

Note: * marked debentures are not available at present. Source: SEC, DSE and CSE report.

7 17% BeximcoFisheries Debenture 1994 120

8 *15% Easterning Housing Debenture 1994 10% Convertible 800

9 14% BeximcoTextile Debenture 1995 240

10 14% BD Zipper Debenture 1995 20% Convertible 40

11 14% Beximco Denims Debenture 1995 300

12 14% BD Luggage Debenture 1996 20% Convertible 150

13 14% Aramit Cement Debenture 1998 20% Convertible 110

14 15% BD Welding Electrodes Debenture 1999 20

15 IBBL Mudaraba Perpetual Bond 2007 Profit Sharing 3,000

16 ACI Zero Coupon Bonds 2010 20% Convertible 1,070

17 Sub Bonds of BRAC Bank L 2011 25% Convertible 3,000

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Agenda

1. Objectives of the research

2. Sources of data

3. Bond and bond market3. Bond and bond market

4. Bond market in Bangladesh

5. Constraints on development of bond market

6. Findings and recommendations

7. Conclusion

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Constraints on Development of Bond Market

� Limited number of investors

� Capital gain

� High return in risk free government bond� High return in risk free government bond

� Alternative sources of debt financing

� Underdeveloped Tax system

� Weak regulations and market infrastructure

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Constraints on Development of Bond Market (contd)

� High interest rate

� Illiquid secondary market

� The high transaction costs of bond issuance

� Cheap syndicated loans

� Default on interest payment in early 1990s

� Inexperienced investors

� High inflation

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Interest Rate on Savings Products (July 2011)

Source 3－－－－6 months 6mnths-1yr 1yr & above

State owned commercial banks 5.50－7.50 6.75－8.75 8.00－11.50

Specialized banks 5.75－7.25 6.00－7.50 6.75－9.00

Source: Bangladesh Bank .

Specialized banks 5.75 7.25 6.00 7.50 6.75 9.00

Private banks 7.00－12.75 7.25－13.00 8.00－11.75

Foreign banks 3.75－12.50 4.00－12.25 4.50－11.00

Post office NA NA 11.50

National savings certificates NA NA 12.00

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Agenda

1. Objectives of the research

2. Sources of data

3. Bond and bond market3. Bond and bond market

4. Bond market in Bangladesh

5. Constraints on development of bond market

6. Findings and recommendations

7. Conclusion

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Findings

-Status of Bangladesh Bond Market

� Comparison of size of Bond Markets in Some Asian Countries , March 2011 (% of GDP)

Category Korea Mala China Sing Thailand Philip India Sri Pak BD

Source: Asian Bond on Line, BIS, RBI.

Category Korea Mala China Sing Thailand Philip India Sri Pak BD

Government 48.8 48.1 46.1 41.2 40.7 33.3 36.1 31.6 27.5 17.1

Corporate 61.8 37.5 4.7 30.7 15.9 3.5 3.9 - - -

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Findings

-Status of Bangladesh Bond Market (contd)

� Finance Indicators for South Asian countries(2001-2011)

Individual indicators rank India Pakistan Sri Lanka Bangladesh Nepal

Overall rank 1 2 3 4 5

Source: Getting Finance Indicators

Note: Score from 1 to 5, with lower score (higher values) denoting better (poor) position.

Overall rank 1 2 3 4 5

Access to finance 3 4 1 2 5

Financial stability 1 2 3 4 5

Performance and efficiency 3 1 2 4 4

Capital market development 1 2 3 4 5

Market concentration and competitiveness

1 4 5 2 3

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Findings -Status of Bangladesh Bond Market (contd)

� Indicators of Corporate Governance, South Asia, 2011

Country Voice& Accountability

Political stability

Government effectiveness

Regulatory quality

Rule of law Control of corruption

Bangladesh -0.63 -1.4 -0.81 -0.86 -0.81 -1.05

Source: South Asian Financial sector review.

Note: Governance score from -2.5 to +2.5, with higher (lower values) denoting better (poor) governance .

Bangladesh -0.63 -1.4 -0.81 -0.86 -0.81 -1.05

India +0.38 -0.01 +0.03 -0.22 +0.10 -0.39

Pakistan -1.05 -2.44 -0.62 -0.56 -0.93 -0.83

Sri Lank -0.39 -1.96 -0.29 -0.11 +0.06 -0.13

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Recommendations

-Measures to Improve

� Establishing a sovereign yield curve to serve the pricing

guide in the bond market

� Proving the government as a credible issuer and market � Proving the government as a credible issuer and market

developer

� Level playing field for foreign and retail investor

� Establishing a well-functioning system for primary dealers

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Recommendations

-Measures to Improve (contd)

� Steps to enhance secondary market liquidity

� Increasing transparency in the secondary market through

dissemination of market informationdissemination of market information

� Introducing Delivery Vs Payment System (DVP)

� Developing Bond Index

� Developing qualitative strength

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Agenda

1. Objectives of the research

2. Sources of data

3. Bond and bond market3. Bond and bond market

4. Bond market in Bangladesh

5. Constraints on development of bond market

6. Findings and recommendations

7. Conclusion

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Conclusion

� This report investigates the current status of bond markets

of Bangladesh.

� The thin bond market in Bangladesh faces manifold� The thin bond market in Bangladesh faces manifold

challenges like excessive reliance on bank credit,

government debt instruments dominated by primary auction

based, absence of benchmark yield curve and lack of

product variation.

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Conclusion (contd)

� The prerequisites of the bond market development and factors to

influence the bond market indicates that the neighbor countries have

dramatically progressed in almost all the categories while

Bangladesh does not meet most of the preconditions to develop anBangladesh does not meet most of the preconditions to develop an

efficient bond market.

� It is believed that Bangladesh will be able to speed up its

momentum in the bond market if she adopts all viable strategies,

experiences and reforms program of developed bond markets.

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Thank YouThank You

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