Market framework must be drawn to ensure meaningful reform impact

The country's capital market lacks an underlying policy framework, which is why it has failed to thrive and play its intended role in the economy, speakers said at a discussion on Monday.

So, policy guidelines have to be fixed before moving ahead with restructuring and developing the market, they said at a workshop titled 'Restructuring the capital market and reality' organised by the Economic Reporters' Forum (ERF) at its office in the capital.

Usually, capital markets are used for term financing around the globe, but banks provide long-term financing here, which ultimately has led to a mismatch between the capacity of the banks to lend for long terms and the long-term financing needs, said former commerce minister Amir Khosru Mahmud Chowdhury.

The prevailing practice on one hand hindered the development of the secondary market while on the other it destroyed the banking system, he said.

Mr Khosru said a large number of big foreign portfolio investors, including Bangladeshi immigrants, were keen on investing in the country's capital market. "But they become frustrated when they see the nominal market-cap-to-GDP (gross domestic product) ratio which lays bare the country's overall financial asymmetry."

Speaking as the chief guest, Mr. Khosru also criticised frequent regulatory interventions in the market, which discourage foreign investors from entering Bangladesh's market.

While regulatory interference may benefit vested groups of people for the time being, it does not yield any positive result for the market.

"Deregulation is a must. The securities regulator should stick to policy framing, leaving the responsibilities of enforcement in the hands of quasi-regulatory bodies, such as stock exchanges," said Mr. Khosru, also founding chairman of the Chittagong bourse.

Mr Khosru, also a member of the standing committee of BNP (Bangladesh Nationalist Party), said his party had not intervened in the regulatory affairs of the money market and the capital market when was in power.

"Our party will refrain from making political appointments in the securities regulator and the central bank because democratic practices should be nurtured in economic aspects as much as in politics," he added.

While delivering a speech, the head of the Dhaka Stock Exchange (DSE) Mominul Islam said the scope of the capital market to flourish squeezed severely because of mismanagements over the years.

"Regulations have been tightened keeping in mind how to avert manipulations by wrongdoers." As a result, the cost of compliance became high for the businesses who are compliant and good performers.

The market should be free of any intervention. The stock exchanges will play as referees and they should not be barred from raising the alarm when necessary, said the DSE chief.

Bangladesh's large number of market operators, such as brokers, merchant banks and asset management companies, are unnecessary given the size of the market, he said.

The number of asset management companies is 68 whereas assets managed under listed mutual funds are worth around $300 million.

On the other hand, the number of asset management companies in India is about 44 and total assets managed by only one of them are valued at about $1.0 trillion.

"So many market operators [in Bangladesh] will not bring any positive results unless they can make visible performance," said Mr Islam, adding that democratic practices are necessary to restore investors' confidence in the market.

The DSE chief also said the premier bourse was working to boost its capacity and was expecting 10 large IPOs (initial public offerings) within the next one year.

Chairman of the Chittagong Stock Exchange (CSE) AKM Habibur Rahman said the market capitalisation had failed to keep pace with the economic growth over the years.

"Democracy and political stability are needed for stability in the capital market," he said.

President of the DSE Brokers Association (DBA) Saiful Islam said foreign fund managers tend to shun markets where democracy does not prevail.

"For this reason, we lost foreign investors over the last 10 to 15 years. Now, we are likely to see Bangladesh under the radar of foreign investors after the formation of a political government," he added.

Among others, DSE Director Monhaz Mannan Emon spoke at the programme chaired by ERF President Doulot Akter Mala.

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