Banks’ investments in corporate bonds to be high-quality liquid asset

Dhaka,  Thu,  24 August 2017
Published : 02 Aug 2017, 00:49:15
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Banks’ investments in corporate bonds to be high-quality liquid asset

Basel-III requirements for capital adequacy
Siddique Islam


Commercial banks are likely to be allowed to include their investments in corporate bonds as high-quality liquid asset under liquidity-coverage ratio (LCR) of Basel-III framework.

Bangladesh Bank (BB) made such observations Tuesday at a coordination meeting of major watchdog bodies, namely the Bangladesh Securities and Exchange Commission (BSEC), the Office of the Registrar of Joint Stock Companies and Firms, the Insurance Development and Regulatory Authority (IDRA), the Micro-credit Regulatory Authority (MRA), the Department of Cooperatives (DoC) and Bangladesh Telecommunication Regulatory Commission (BTRC).

At the meeting, held at the BB headquarters, the BSEC requested the central bank to allow the banks to comply with the BB's statutory liquidity ratio (SLR) requirement with their investment in the corporate bonds, as a way of stimulating the capital market.

The central bank failed to agree with the proposal, placed at the meeting, presided over by BB Governor Fazle Kabir.

To justify the refusal, according to officials, the central bank said only the approved securities are eligible for meeting the SLR obligation to the BB.

The approved securities are usually treasury bills (T-bills), bonds and other securities whose principal and interest are guaranteed by the government and also include BB'a own securities

Rather, the BB expressed its willingness to consider such bonds as high- quality liquid asset but their eligibility will be positively examined by the departments concerned of the central bank, they added.

 "We may allow the corporate bonds as high-quality liquid asset under LCR of Basel-III framework after examining its different aspects," SK Sur Chowdhury, deputy governor of the BB, told the FE after the meeting.

Basel-III is a new global regulatory standard on banks' capital adequacy and liquidity as agreed by the members of the Basel Committee on Banking Supervision.

The third of the Basel Accords was developed in response to the deficiencies in financial regulation exposed by the late-2000s financial crisis.

The Basel-III matrix is set to strengthen bank-capital requirements and introduce new regulatory requirements on bank liquidity and bank leverage.

Talking to the FE, another BB official said: "We'll consider the issue positively."

Currently, around Tk 72 billion was invested in the corporate bonds while only three bonds are listed with the stock exchanges, he added.

Meanwhile, a technical committee is working to start trading in the government securities including treasury bills (T-bills) and bonds on the country's stock market using latest technologies, according to the deputy governor.

"We're working on the issue to facilitate investors, both domestic and foreign, with starting trade in the government securities in the share markets," Mr. Sur Chowdhury explained.

    siddique.islam@gmail.com
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