The central bank yesterday said a well-functioning bond market is required to strengthen the country's financial sector.
“An important element required to deepen the financial process is a fully functioning bond market, both primary and secondary,” Bangladesh Bank (BB) said in its Financial Sector Review (FSR) for June 2008.
The review is a half-yearly publication of BB that provides an update of the country's financial sector outlook, by keeping in mind the monetary policy stance.
The June 2008 issue said: “The bond market is a viable mechanism for delivering agricultural, industrial and infrastructure finance and more active equity and insurance markets for improved and efficient allocations of risks in the economy.”
According to analysts, bond financing is an alternative source of funds to bank loans. The bond market allows a borrower to directly access funds from multiple investors, usually at lower interest rates and with greater structuring flexibility than traditional bank loans.
Bangladesh has a bond market, but it is not strong enough to meet the growing demands of the economy. Although a primary bond market is working, a secondary market is still at nascent stages here.
“If the bond market is developed, the financial market will be bigger, faster and more competitive,” said SM Shamsul Arefin, managing director of Uttara Finance Ltd.
Arefin said another benefit of having a strong bond market will be an increase in domestic savings.
The FSR recognises the credit and liquidity risks in the financial market. The priority of the financial sector policies is to establish a competitive banking and non-bank sector with abilities to overcome maturity-mismatch and classified loan problems, it said.
BB has adopted several measures through implementing financial sector reforms and adopting new policies that include restructuring of specialised banks, establishing a well-functioning secondary bond market and opening up of the financial sector to a global level by ensuring proper regulations, the review said.
“Promoting healthy competition in the banking sector remains the cornerstone of the country's financial policy stance,” it said.
The review said BB has taken steps to fulfil the capital adequacy ratio to comply with the Basel II norms.
The FSR said the interest rate spread showed a declining trend. The spread between lending and deposit rates declined by 0.97 percentage points between June 2001 and March 2008. The capital market has been showing an upward trend consistently.
The FSR also stressed effective corporate social responsibility to promote sustainable industrialisation.
Source: thedailystar.net
