2011年-世界发展银行全球_Bangladesh_-_Non-Lending_Technical_Assistance_on_Capital_Markets_25页_537kb

Summary of the Document: NON-LENDING TECHNICAL ASSISTANCE ON CAPITAL MARKETS (P125469)

Core Content

This document outlines the challenges and vulnerabilities in the capital markets of Bangladesh, particularly focusing on the stock and bond markets, and their impact on financial stability and economic growth. It provides an analysis of the regulatory framework, market development, and governance issues, and suggests a plan of action for improvement.

Main Viewpoints

• Market Volatility: The Bangladesh stock market experienced significant volatility in late 2010 and early 2011, leading to stock values that were not aligned with fundamentals and threatening the stability of the financial system.
• Growth Constraints: The financial system's growth is constrained by financial rigidities, infrastructure shortages, and power deficits, which are largely due to underdeveloped capital markets.
• Underdeveloped Capital Markets: Both the stock and bond markets are underdeveloped, with limited liquidity, weak regulation, and insufficient investor base.
• Regulatory Framework: The regulatory framework is outdated, inconsistent, and lacks enforcement capacity, especially in areas such as insider trading, related party transactions, and corporate governance.
• Institutional Gaps: There is a lack of long-term funding institutions capable of supporting private debt markets, and the investor base remains undiversified.
• Need for Reform: The document emphasizes the need for regulatory reform, improved enforcement, and institutional development to stabilize and strengthen the capital markets.

Key Information

Macroeconomic and Financial Sector Background

• Bangladesh has maintained a high growth rate of nearly 6% per annum since 2000, but recent performance has shown signs of deterioration.
• Inflationary pressures have increased, and the external position has weakened, leading to a narrowing current account surplus.
• Private investment remains low, at less than 20% of GDP, and is significantly below the levels of high-growth countries in South Asia.
• The financial system has seen improvements in asset growth and non-performing loan reduction, but capital market development has lagged behind.

Capital Markets Overview

• Stock Market: The DSE and CSE have seen increases in capitalization and turnover, but regulatory capacity and legal framework have not kept pace with growth.
• Market Capitalization: In April 2011, the DSE had a market capitalization of Tk 2,668 billion, representing about 37% of GDP.
• Market Structure: Ownership is concentrated, with sponsors accounting for 43% of shares, and the public holding 38%. Free float is only 42% of listed shares.
• Z Companies: A significant number of companies (97 out of 230) are classified as Z companies, which do not comply with disclosure requirements, raising concerns about market transparency and stability.

Bond Market

• The corporate bond market is underdeveloped, with only three corporate bonds and eight private placements of debentures issued in 2010.
• Government debt securities are illiquid, traded mainly over-the-counter, and the secondary market is dominated by repo transactions.
• The lack of a functional government debt market has limited the ability of the financial system to rely on market-based yield curves.

Regulatory Framework

• The regulatory framework is outdated and inconsistent, with the Companies Act based on 1913 UK legislation and not well adapted to current needs.
• The SEC and BB have overlapping and conflicting roles, with poor coordination and limited enforcement capabilities.
• The SEC has not reformed its functions, staffing, or IT platforms since its creation in 1993, and lacks the capacity to attract and retain qualified professionals.

Transparency and Governance

• Disclosure by listed companies is limited, and financial statements are rarely available to the public.
• The SEC lacks specialized accounting staff to verify financial statements, leading to weak enforcement of disclosure requirements.
• Corporate governance standards are weak, with limited compliance to guidelines, and shareholder rights are not well addressed.
• Insider trading and related party transactions are not adequately regulated, and there have been no convictions for these activities.

Plan of Action

• Strengthen Regulatory Framework: Harmonize the Companies Act with securities regulations and update definitions of insider trading.
• Enhance Enforcement Capabilities: Improve the SEC's staffing, budget, and IT infrastructure to ensure effective oversight and enforcement.
• Develop Secondary Markets: Encourage the development of a secondary market for government bonds and corporate bonds to improve liquidity and yield curve formation.
• Promote Corporate Governance: Implement and enforce corporate governance standards, including shareholder rights and transparency requirements.
• Improve Market Infrastructure: Expand the use of electronic trading systems, central depositories, and improve the quality of financial reporting and auditing.
• Diversify Investor Base: Encourage the development of private institutional investors and reduce reliance on government securities.
• Enhance Transparency: Establish a centralized platform for investors to access financial and company data, and improve disclosure requirements for company ownership and share classes.

Conclusion

The capital markets in Bangladesh are underdeveloped, poorly regulated, and lack transparency, which threatens financial stability and economic growth. The document calls for a comprehensive reform of the regulatory and enforcement mechanisms, along with the development of secondary markets and improved corporate governance practices, to ensure a more stable and sustainable financial system.