Bangladesh Capital Market: The Pathway Towards Upgradation | 5 Minute Read

Author:Avirup Sarkar
email: info@egenconsultants.com

Bangladesh Capital Market is an equity dominated market with approximately US $40 Billion[1] Market Capitalization which is about 14.5%[2] of the Nominal GDP. Putting this in context with neighboring countries like India, Pakistan, Sri Lanka, we can deduce that the Capital Market in Bangladesh is still in its preliminary stages of maturity. The following bar chart (Figure 1) shows a composite analysis of the Market Capitalization to GDP ratios and Per-capita Size of the capital markets[3]. Figure 1 here shows that Bangladesh has the lowest Market Cap to GDP ratio and per capita Market Cap value of all the countries compared. It is even below Sri Lanka and Nepal, countries with significantly smaller economy and hence, smaller market capitalizations. However, there are factors other than market cap indicators for assessing the attractiveness of a capital market. The Financial Times Stock Exchange (FTSE) Ranking is a rating system that utilizes most of the relevant indicators of capital market attractiveness. Bangladesh is rated a ‘Frontier market’ under FTSE Ranking considering the 17 countries in the Asia-Pacific Capital Markets that have been assessed. FTSE does not consider embryo markets like Cambodia, Myanmar and Nepal. Figure 2 clearly shows the FTSE rating of Asia-Pacific Capital Markets by categories along with the indicators considered. 

The above discussion clearly indicates that the capital market of Bangladesh is lagging behind its neighboring countries in terms of investment attractiveness. The major issues negatively affecting the market development include –

  • Lack of a State-of-the-Art Surveillance and Supervision System
  • Lack of Manpower and Technical Capacity of the Regulatory Agencies (BSEC & IDRA)
  • Low level of Fund-flows in the capital market
  • Lack of an Automated Clearing and Settlement Framework
  • Lack of Diversity in terms of Capital Market Instruments
  • Insufficiency of Policy & Regulatory Framework for market expansion

The primary objective of the Asian Development Bank funded “Bangladesh: Third Capital Market Development Program (CMDP 3)” is to make to provide capacity building & institutional strengthening support to the regulatory authorities and supporting the government in laying out the policy & regulatory background resolving the above-mentioned issues.

Our consulting team in the CMDP 3 has performed a comprehensive assessment of the institutional framework and capacity of Bangladesh Securities and Exchange Commission (BSEC) & Insurance Development and Regulatory Authority along with a full overview of the regulatory and policy landscape. Through these they have identified and achieved the following outcome with a view to resolving the above-mentioned issues and enabling the capital market to graduate to the next level as a ‘Secondary Emerging Market”.

  • BSEC new organogram for Additional 150 technical employees already approved.
  • An automated clearing and settlement company CCP has been proposed for establishment and is soon to be approved
  • Sukuk (Islamic Finance) regulatory & policy framework has been drafted and approved
  • Derivatives regulatory & policy framework has been drafted and approved
  • Short-selling rules have been drafted and approved

 

[1] Derivative from Nominal GDP of Bangladesh 2018 & Market Cap as a Percentage of GDP 2018 [Source: ‘Bangladesh Nominal GDP’ | ‘Bangladesh Market Capitalization: % of GDP’ – CEIC Data Company Ltd.]

[2] Bangladesh Market Capitalization: % of GDP’ – CEIC Data Company Ltd.

[3] We have taken the absolute value of the market cap and converted it to per-capita values in order to eliminate the deviations caused by the population & country size factors

The following bar chart (Figure 1) shows a composite analysis of the Market Capitalization to GDP ratios and Per-capita Size of the capital markets[3]

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