All Words And No Action

Bangladesh’s secondary bond market lacks effectiveness

An effective bond market plays an important role in the economic development of a nation, as it provides an alternative method of giving money to entrepreneurs. It has the ability to generate employments and industries, but sadly, that is not the case in Bangladesh as of yet. There are no corporate bonds in the market, due for which the bulk of the responsibility is rested upon banks. But as the banks are busy in dishing out loans to the government, they have lost their ability to invest in such an endeavour.

Indeed, a vibrant domestic bond market can reduce a country’s dependence on short-term foreign currency borrowing and also help the country accelerate its economic activities. One of the problems in Asian countries is that they are too dependent on short-term foreign currency borrowing which is dangerous. Development of a domestic bond market should be a priority of the country. A proper domestic bond market can speed up financial development of a country like Bangladesh.

Only limited among banks

From the amount of deposits that banks usually collect, 19% of it has to be put in the central bank, out of which, 5% is Cash Reserve Requirement (CRR) and 13% of which is Statutory Liquidity Ratio (SLR.) The bank can always dish out the remaining 81% as loans. Currently the provision of keeping CRR and SLR against deposits is Tk. 1.4 trillion, but they actually have Tk. 2 trillion worth of idle money, in the form of government bonds and bills. According to the central bank, total bonds are accumulated to Tk. 1.45 trillion, which are mostly five to twenty years long.

Share-dependent stock market