Bonds excluded from banks’ capital market exposure

Corporate bonds and debentures will not be a part of the banking companies' capital market exposure, according to the modified bill to amend the Bank Companies Act.

The draft bill approved by the cabinet on Tuesday, however, added a separate clause to let the Bangladesh Bank determine how much a bank can invest in corporate bonds, debentures and Shariah-based securities like Sukuk.
All corporate bonds and debentures have been excluded from the banks' investment portfolio components that in total cannot exceed 25% of a bank's total equity for the sake of the development of the bond market, reads the rationale part of the proposed amendment.

Hailing the development, Bangladesh Securities and Exchange Commission (BSEC) Chairman Professor Shibli Rubayat-Ul-Islam said the much-needed exchange trading of corporate bonds has been given a hand through the proposed change.

A corporate bond, if listed in the stock exchange, was being included in banks' capital market exposure. And, it was discouraging banks to invest in listed corporate bonds as they felt a pressure to keep their total capital market exposure within the 25% limit, he told The Business Standard.

In a vicious cycle, to attract banks' investment, bond issuers have been avoiding listing, said the chief of the capital market regulator.

On the other hand, "The same corporate bond, if not publicly traded, has been off exposure, leaving more room for banks to invest there," said Md Sayadur Rahman, president of the Bangladesh Merchant Bankers Association.

Currently, there are not many corporate bonds in the stock exchange, said Rahman, adding that bond issuance and listing should increase in coming years to catch up with other capital markets across the world.

The BSEC has been instructing bond issuers to list their bonds in the stock exchange platforms so that existing investors enjoy a better exit opportunity as well as new investors can easily buy the fixed income instruments from the secondary market.