Wednesday | 15 January 2025 | Reg No- 06
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Wednesday | 15 January 2025 | Epaper

SOBs should run after second option, the bond market

Published : Sunday, 18 February, 2018 at 12:00 AM  Count : 583
Haradhan Ganguly
A good proposal the bosses of some state owned banks (SOB) gave to banking division of finance ministry in the wake of the ministry's decision to recapitalize SOB's again. They said, SOBs provide nearly 40 types of services to people on behalf of government without charging any fees. If the government allows them to charge at least 1.0 percent commission on the services, the banks can earn a significant amount of money which can help them replenish their capital to some extent.
The proposal was given on the sideline when bank bosses requested the government to provide the funds as capital inadequacy hampers their business. The first thing we support bank bosses' proposal. Free services sufficiently cost and doresource drain of the SOBs for those they are not rewarded and for which private banks are safely kept them off. Like market, financial market should be left to play with the competitive edge irrespective of public and private. We believe, if it is ensured a free market play without any poke in the nose of financial institutions division (FID) under the ministry of finance (MOF), today's the sorry state of SOBs would have been otherwise.
In that meeting arranged by FID recently, the government again moves to give funds for recapitalization of SOBs amid criticisms from economists about sending public money down the drain. The government had earmarked TK 20 billion as budgetary allocation to recapitalize the banks in need. The Basel- 3 regulatory framework has raised capital-adequacy requirement for banks which most SOBs fall short of. But we view that budgetary allocation of 20 billion is a peanut as the banks need TK 200 billion. So the SOBs are in real dilemma, how to split such a small amount against the big requirements.
Is it not correct to think that SOBs should run after other avenues to replenish their big capital deficit? Why they do not have any attempt to recover the loans and money looted from the banks. It seems the bankers wait for easy money from the public exchequer without performing duty properly. It looks like the government is pouring water into pipeline and bankers are taking those out of the taps. Rather we propose the government should take a tough stance and ask the bankers to recover the bad loans first to get any help from the exchequer.
Through this process of pumping money into the banks, government's liabilities are increasing day by day. Only Sanchaypatra is not burdensome to government. It has positive side by invigorating market demand for goods and services and recent research finds out the investment in savings instruments are not stifling so much to the government as bad loans and non-performing loans do. Data until last September show that Sonali Bank suffered capital inadequacy worth TK 31.40 billion, BASIC bank TK 25.23 billion, Janata Bank TK 12.73 billion and Rupali Bank TK 6.60 billion. Besides, Bangladesh Krishi Bank has a capital shortage of TK 75.40 billion and Rajshahi Krishi Unnayan Bank needs TK 7.42 billion for recapitalization. So budgetary allocation to fill the needs is simply a ripple on the sea.
SOBs should run after second option and finding second avenues. They are often advised by experts to go to bond market -- an integral part of the money market. In the last two decades, we have seen a series of measures to create a vibrant bond market. While all most all the elements of an active bond market have long been present, these measures are yet to yield any effective outcome. The bond market is now only about 5.0 percent of the country's Gross Domestic Product (GDP).
The bond market is a part of the money market; its other part is equity market, which is popularly known as stock or share market. Money market and capital market together form the financial market. Though the foreign exchange market is part of the money market, it is sometimes considered as the third pillar of the financial market.
Bond is fundamentally a debt instrument and bond market is also called debt market. To put it in another way, investment in bond means invest in debt. Any government or corporate body may issue a bond to take a loan from the market. Investors or those who purchase the bond will get back the principal amount with a fixed or preset rate of interest after a certain period or on maturity. That is why bond is also known as fixed income security.
The activity of the bond market in Bangladesh is limited and fragmented. It is still dominated by the government securities. There are Treasury bills (T-bills) and Bangladesh Government Treasury Bonds (BGTB or T-bonds) with different maturity periods. T-bills are short term and T-bonds are long term fixed income government securities. Latest statistics of central bank show that the total turnover of the secondary of the T-bills and T-bonds stood at TK 282.91 billion in 2017 while the value was TK 514.08 billion in 2016. So SOBs have wide scope to take bond market as their second options for recapitalizing their deficit.
Different media inform that banks are suffering from an acute crisis of funds. Even they rein in or stop giving loans to businesses. Deposit rate also has been hiked, yet banks are unable to collect funds. Savers are running into a mess. Even some days before lending rate was nearly 8 to 9 percent. Now 2 to 3 percent is added to this. Experts are viewing that lessening of advance- deposit ratio (AD) is working behind the fund crisis of the banks. That means, advance is made to be dwindled against the deposit.
For replenishing fund deficit SOBs have no other alternative to the second option. The bond market is the best.
The writer is a freelance contributor






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