Bond Market

Bond Market Before independence, the use of bonds as a means of resource mobilisation was virtually non-existent. Immediately after liberation, the government of Bangladesh reissued long-term bonds accepting the liabilities of the Income Tax Bonds and the Defense Bonds of Pakistan government held by Bangladeshi nationals and institutions. The government also issued a 5% non-negotiable bond to Bangladeshi shareholders of nationalised industries. In addition, savings bonds were also issued to pay for the value of demonetised 100-taka notes in 1974. Most of these bonds are held by bangladesh bank.

The first effort to mobilise savings for use of development expenditure was the issue of Wage Earners Development Bonds in 1981 to be sold to Bangladeshi wage earners abroad. Later, a two-year special treasury bond was issued in January 1984 to be sold to individuals, public and private sector organisations including banks. In December 1985, another instrument, the National Bond, was issued to be sold to non-bank investors.

During the implementation period of the financial sector reform programme that took effect from 1990, nationalised commercial banks, specialised banks and development financial institutions had to make considerable provisions for huge classified loans. As a result, the capital base of those banks and financial institutions eroded severely and their viability was seriously threatened. In this situation, the government issued a series of bonds to restructure the capital base of these banks and financial institutions as well as to assume the liabilities of the bad loans made to a number of public sector organisations.

The government also issued some bonds for augmenting loan-worthy funds for speacialised banks and financial institutions. Moreover, some bonds were also issued to mobilise funds for a number of public sector organisations like the T&T Board, Bangladesh Biman etc. Following is the list of bonds issued by the government on various occasions: 15-year treasury bond (recapitalisation and bad debt provisioning, issued 30.12.1990); 3-year Jatiya Biniyog Bond (national investment bond, issued 30.12. 1985); Interest-free treasury bond (issued 1988, withdrawn from 15.10.1993); treasury bond to specialised banks (isssued 2.5.1993); 3-year T & T bond (for digital telephone installation, issued 29.12.1993); 3-year special treasury bond (for reimbursement of losses on A/C of working capital, issued 1.7.1993); 15-year treasury bond (capitalisation, provisioning and agricultural loans write-off, issued 16.10.1993); 25-year treasury bond (jute sector liquidation, issued 1.11.1993); 3-year treasury bond (reconstitution of BSRS, issued 16.4.1994); interest free treasury bond (issued 30.6.1994) and 2-year treasury bond (issued 15.7.1995) for reimbursement of agricultural loan remission,); 3-year treasury bond (reimbursement of loss in jute sector, issued 1.7.1994); 3-year T&T bond (for digital telephone installation, issued 7.8.1994); 3-year treasury bond (reimbursement of loan loss in BADC, issued 29.6.1995); 3-year treasury bond (reimbursement of loan loss in BTMC, issued 29.6.1995); 3-year T & T bond (for digital telephone installation, issued 30.1.1995); 3-year jute treasury bond (for jute sector, issued 1.7.1995); 25-year treasury bond (jute sector liquidation, issued 30.6.1994); 5-year Biman treasury bond (to increase share capital of Biman, issued 29.6.1995); 3-year jute treasury bond (issued 1.7.1995); 25-year jute treasury bond (private banks jute loan liquidation, issued 1.7.1995); 15-year agriculture treasury bond (reimbursement of agricultural loan remission, issued 16.4.1996); 3-year T & T bond (for digital telephone installation, issued 30.11.1996); 3-year treasury bond (reconstitution of BSRS, issued 19.6.1997); 5-year Biman treasury bond (share capital, issued 1.4.1997); 3-year treasury bond (reimbursement of loan loss in BTMC, issued 26.5.1996); 3-year T & T bond (for digital telephone installation, issued 22.6.1999); 10-year jute treasury bond (for jute sector, issued 1.7.1995); 5-year Biman treasury bond (issued 25.5.1998); 5-year Biman treasury bond (issued 15.7.1998); 10-year BSC treasury bond (to meet the loss of BSC, issued 1.7.1998); 10-year jute treasury bond (for jute sector, issued 1.7.1995); 3-year T&T bond (issued 18.8.1999); and 3 year treasury bond (bad loan provisioning, issued 1.1.2000).

Marketability of bonds issued in the country is very limited. The bulk of these bonds is held by the nationalised commercial banks. The few specialised and some private banks hold a part of them. Individuals and non-bank financial institutions also hold some of these bonds. Therefore, the main market of these bonds so far are being provided by the banks which hold them due to the government allocation system, as well as to maintain statutory liquidity requirements (SLR). Many of these bonds are non-negotiable. As there is no secondary market in the country, the holders of these bonds have to wait till the date of maturity for their encashment. [Syed Ahmed Khan and A Samad Sarker]