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Agenda
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Global Overview
Debt Market in Bangladesh
Challenges
The Roadmap
Calm Returns to Emerging Markets
Emerging Markets – Core Inflation (Jun 03 – Feb 07)
Continued Robust EM Economic Performance
 After the recent shock to emerging markets, bond,
equity, and currency markets are climbing back to their
late February levels.
 The basis for strong emerging market growth —
increasing productivity driven by further international
diversification of supply chains, financial innovation,
and better economic policy management — remains
intact
Total Returns for Various Fixed Income Sectors
(as of Dec 06)
Source: Haver Analytics and Citi
11.27
12
Dec 2006
10.17
Year-to-Date
Total Return (%)
10
5.17
6
4.58
4.17
4.55
3.1
4
2
0
-2
1
 In 2006, with pressure from rising Treasury yields,
emerging markets was one of the two sectors that
experienced positive total returns in December 2006
and this out-performance sets to continue well into
2007
8
1.21
-0.81
Treas.
-0.55
Agency
-0.29
Mortgage
-0.28
ABS
0.95
-0.84
Credit
HY
Em. Mkts
 Total new issuance in 2006 have exceeded annual
historical patterns.
State of the Debt Market in Bangladesh
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GDP of USD 63 Bln
Total Domestic Savings to GDP - 20.3%
Of the Domestic Savings:
• Bank Deposits is 72%
• Debt Market is 28%
• Government 99%
• Treasury Bills 27%
• Treasury Bonds 14%
• Saving Schemes 59%
• Private Debt 1%
Government Debt to GDP 47%
• Internal 17%
• External 30%
Salient Features
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Fixed Income Market is dominated by Bank deposit and loans
Debt instruments are dominated by the Government
Most activities are on the primary auctions
Number of primary dealers – 9
Few debentures have been issued, otherwise corporate debt is almost nonexistent
Absence of a clearly defined yield curve
– High Govt borrowing rate through the Savings Certificates
Bank deposits are eroded through a sizeable non-performing loan portfolio
held by the nationalized commercial banks
Trading of private debentures is negligible due to the inferior quality of the
instruments. Also, there is lack of product variations.
Salient Features of Govt. Securities
Govt. Treasury Bills
Bangladesh Bank Bills
Govt. Bonds
Issue Tenors
28 days
91 days
182 days
364 days
30 days
90 days
5 years
10 years
Auction Frequency
28 days - weekly
91 days - weekly
182 days - fortnightly
364 days - fortnightly
30 days - weekly
90 days - weekly
5 years - monthly
10 years - monthly
Transferability
Freely transferable among residents
Reserve Qualification
Yes
Tax
Investment Eligibility for
Non-residents
Lock-in Period for Nonresidents
10% upfront
No
No
Yes
1 year. However, can be
transferred to another nonresident
T Bills and Bonds
28 days T Bills
91 days T Bills
182 days T Bills
364 days T Bills
Yield
7.33%
7.58%
7.88%
8.46%
5 year T Bond
10 year T Bond
10.79%
12.49%
Government Savings Schemes
Instruments
Yield
5 Year Bangladesh Savings Certificates
3 Monthly Savings Certificates
Pensioners Savings Certificates
Post Office Savings Certificate
12.00%
11.50%
12.50%
12.00%
Bank Deposit & Loan Rate
Average Bank Deposit Rate
Average Bank Loan Rate
5.64%
11.24%
Prominent Issuers in the Debenture Market
Debenture
Coupon
Beximco Infusion Ltd
17%
Beximco Synthetics Ltd
14%
Bangladesh Chemical Industries Ltd 17%
Eastern Housing Ltd
15%
Beximco Knitting Ltd
14%
Beximco Fisheries Ltd
14%
Beximco Textiles
14%
B.D. Zipper Ind. Ltd
14%
Beximco Denim Ltd
14%
Bangladesh Luggage Ind.
14%
Arami Cement Ltd
14%
Year of Flotation
1992
1993
1993
1994
1994
1994
1995
1995
1995
1996
1998
Issued debenture
(in millions of taka)*
14.5
240.8
3.2
202.5
188.4
94.3
222.8
22.4
278.5
135.0
112.5
-T bill rates bottomed in Feb-05
Tenor Wise Govt Securities Rate
Movement
-T bill interest rates moved in reverse directions of
inflation most of the time
-Current T bill rates showing a plateau with a declining
tendency in the longer tenors
14
28 Days
12
91 Days
182 Days
8
364 Days
6
2 Years
Date
Apr-07
Feb-07
Dec-06
Oct-06
Aug-06
Jun-06
Apr-06
Feb-06
Dec-05
Oct-05
Aug-05
Jun-05
Apr-05
Feb-05
Dec-04
Oct-04
Aug-04
Jun-04
Apr-04
Feb-04
Dec-03
Oct-03
Aug-03
10 Years
Jun-03
2
Apr-03
5 Years
Feb-03
4
Dec-02
Yield
10
Inflation
Shifts in Govt. Treasury Yield Curve
13.00
12.00
11.00
Mar-03
Jan-04
9.00
Jun-04
Jan-05
8.00
Jun-05
7.00
Jan-06
Jun-06
6.00
Jan-07
5.00
- The curve started shifting downward from Mar 03
- Bottomed in Feb 05
4.00
- Started to rise again from Mar 05
Tenor (in days)
3650
1825
730
364
182
91
3.00
28
Yield (%)
10.00
Apr-07
Challenges
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Absence of effective interest rate structure
Almost no secondary trading of government debt instruments
Weak governance institutions
Overlapping role of the SEC and Bangladesh Bank
Out-crowding effect from bad loan situation
Dominance of NCBs
Cumbersome information system
Insignificant non-banking sector
Absence of arbitration institutions
Low effectiveness of Credit Rating agencies
Absence of SEC guidelines on FIS
Roadmap
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Establish benchmarking and long term Yield Curve.
Rationalization of the Interest Rate Structure whereby the Government borrows
at the lowest possible rate to create a level playing field.
Provide a Legal Framework of user friendly Rules & Regulations, conducive to
the creation and development of an active market.
Increase effectiveness of independent Credit Rating Agencies
Develop and strengthen market intermediaries like primary dealers, investment
analysts, investment / merchant banker’s etc.
Expose pension and insurance funds to the debt market.
Facilitate Securitization and issuance of Asset Backed Securities and
Collateralized Loan Obligations.
Improve Central Depositary and Electronics Settlement and Registration
System.
Upgrade Accounting and Disclosure Standards as well as Foreclosure Laws.