Bangladesh’s capital market and the future economy


For market development, it is observed that BSEC works in collaboration with Bangladesh Bank, Ministry of Finance, Dhaka and Chittagong Stock Exchanges (DSE and CSE), NBR and other relevant stakeholders.

The executive bodies of BMBA and DBA are also committed to working tirelessly with the various stakeholders for the improvement of the market.

IDRA has also taken a number of bold steps and regulatory reforms to remove bottlenecks and support the growth of the insurance sector in Bangladesh.

At the start of 2020, when the stock market was experiencing a shortage of liquidity, Bangladesh Bank stepped forward and allowed banks to invest more in the stock market beyond their limit of exposure to the capital market by setting up special funds at low cost.

In addition, further unprecedented political support from the central bank to increase monetary flows in the economy during the pandemic period and increased monitoring of sales of domestic savings certificates also contributed to an increase in turnover. in the capital market.

Also Read – Bangladesh Capital Market Ready to Boost Future Economy

It was a great initiative and support for the capital market.

In the meantime, BSEC has already taken various initiatives and reforms for the development of the capital market.

BSEC introduced SME markets, abolished OTC platforms, introduced digital kiosk services for brokers, etc.

The regulator has also strengthened the supervision and compliance of market intermediaries and listed companies.

BSEC and DSE have also taken various steps to recruit multinationals, profitable state-owned enterprises and large trading groups from the country.

It is natural to remain in divergent positions by different regulators and stakeholders on a number of outstanding issues.

Each statutory body has its own legal framework, views and opinions and conflicting situations will continue to evolve.

For example, some of the recent BB actions have indicated that they actually want to protect the market from any undesirable situations through political actions and increased monitoring and control of banks’ investments in the market.

While, regulator of the capital market, the BSEC has remained active to save investors from any unfavorable situation.

During this time, BB must make important political decisions for its management of the money market.

However, not all major policy decisions always favor the capital market.

Resetting the bank deposit rate above the inflation rate, limiting liquidity in the money market by selling notes, and selling dollars to keep the exchange rate stable are some of these decisions.

BSEC and Bangladesh Bank have yet to mutually agree on issues such as reporting of bond investments by banks in capital market exposure ratio and lending to ICB by banks. state banks, the decision on compulsory payment of dividends from perpetual bonds, etc.

The double taxation of dividend income by the BNR also discourages potential investors and market companies.

Since corporations pay corporation tax on profits, there should no longer be tax on the distribution of dividends after corporation tax is paid.

For the sake of market stability, all regulators and stakeholders should remain cautious of any press releases on outstanding issues in order to refrain from rumors and selling pressure caused by panic on the market. the market.

It should be noted that the duty of a regulator in the market is to guarantee a good environment conducive to investments, to protect minority investors against any wrongdoing and fraudulent activities, to ensure good governance and supervision with a mechanism of appropriate oversight and control, formulating policies, rules and regulations. for the long-term improvement of the market.

The market will function naturally according to the overall economic landscape, supply and demand and the commercial performance of listed companies.

Dependence on banks for long-term business financing

A major problem in our financial market is the inefficient use of financial resources and the channeling of funds from borrowers to lenders, from savers or investors to users of funds, from households to businesses.

Ideally, the capital market provides a means of raising capital directly from savers and investors for the long-term equity financing needs of industries.

The secondary market in turn provides a price discovery mechanism and allows investors to deal directly with each other in a fair, efficient and transparent manner.

Banks are expected to engage primarily in short and medium term loans.

However, the case in Bangladesh is very different. In Bangladesh, banks provide long-term loans with short-term funds.

Meanwhile, for the benefit of the business community and to protect depositors from inflation-induced value erosion, a strong policy decision is in place to keep the lending rate at a cap rate. of 9% and a floor rate of 6% on deposits.

Banks have witnessed some challenges in asset liability management in order to comply with various regulatory guidelines.

List of strong multinationals, profitable state-owned enterprises and large profitable business groups

Our regulatory and policy markets are actively working on market development and increasing market depth.

A good number of well-governed and profitable multinational and local business groups such as Unilever Bangladesh Limited, Nestlé, Chevron, SCB, HSBC, CitiBank NA, Sony, Coca-Cola, Abul Khair, MGH, PRAN-RFL, AKIJ, Bashundhara , Jamuna, City Group, Abdul Monem are still not listed on the capital market.

Listing these companies will encourage more new investors to invest in the market.

The contribution of our capital market to the country’s GDP is still very low and the listing of more good companies is needed to bring it to the desired level.

However, the government and the regulator can facilitate the political support needed to attract more good companies to the market.

The following initiatives can be considered to encourage companies to enter the market:

Require a mandatory minimum share discharge for multinational companies on the stock exchange

Reduction of the corporate tax rate for listed companies

Elimination of double taxation on dividend income

Reduction of VAT for listed companies

Simplification of the compliance procedure with increased digitization

Simplified registration process with more online documentation requirements

Organization of a road show with companies to highlight the advantages of listing on the market

Ready to deliver

Although the capital market plays an important role in economic development by channeling long-term funds from savers to promoters or users of funds, the capital market in Bangladesh still lags behind those in developing countries. ‘South and Southeast Asia.

The future of Bangladesh’s capital market looks even brighter as the country aims to achieve developed country status by 2041.

This remarkable economic progress should also be reflected in the capital market.

Fortunately, BSEC and all other stakeholders are working hand in hand to create a vibrant capital market that would support the growth of the country’s economy.

BSEC is working tirelessly to expand the market to the desired level.

It works on both the demand side and the supply side and increases market penetration.

In order to reduce imbalances in the financial system, the regulator now encourages small and large companies to come into the market for their long-term financial support.

The registration process has now made it easier to reduce the registration deadline.

Meanwhile, the successful inauguration of the SME market is a milestone in the history of the Bangladesh capital market.

Now any SME below Tk 30 crore can easily be listed on the capital market.

This will help SMEs to grow without any interest payments at the start of their growth and can be transferred to the main market when they get bigger.

This small platform offers enormous potential for a meaningful contribution to the economy by helping small and medium-sized businesses have easy access to capital market funds, when they really need it.

In addition, this SME platform also offers HNIs and institutional investors to diversify their investments with high risk and high growth investment options.

In addition, the regulator is working to popularize the bond market in Bangladesh and a number of bonds have been approved by BSEC in recent times.

The regulator is also working to establish governance and expand funds in the asset management sector.

Field work is underway on alternative investments, commodities market, options, futures and futures markets, ETFs, etc.

This initiative will have a considerable impact on the overall economy and in particular on the development of a vibrant capital market in Bangladesh.

The market can now focus on the long term fundamentals of the Bangladesh economy.

Short-term market volatility should not be viewed as a barrier to long-term market potentials.

With ongoing reform and combined actions from the regulator and other stakeholders, the market is preparing to become a major contributor to the economy and passionate and cautious investors should seek the long-term growth opportunities on the market. the market.

Such growth stories should also attract the attention of more and more domestic and foreign investors.

The author is President of the Bangladesh Merchant Bankers Association (BMBA) and Managing Director of EBL Securities Ltd.

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