Transcript Slide 1
Agenda • • • • 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 10 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 Total Return (%) 8 4.58 4.17 4.55 3.1 4 2 0 -2 1 5.17 6 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 • • • • 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 • • • • • • • • 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 • • • • • • • • • • • 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 • • • • • • • • • 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.