Performance Evaluation of Merchant Banking

Topics: Bank, Bond, Finance Pages: 28 (8185 words) Published: February 26, 2011
Financial and Capital Market of Bangladesh

The financial sector in Bangladesh comprises the money and capital markets, insurance and pensions, and microfinance. In addition to the Bangladesh Bank—the central bank of Bangladesh— there are 4 state-owned commercial banks (SCBs), 5 state-owned specialized banks, 30 domestic private commercial banks (PCBs), 9 foreign commercial banks, and 29 nonbank financial institutions (NBFIs) as of 2008. Figure 1 below depicts the nature of the financial sector in Bangladesh.

The Capital Market

Bangladesh has achieved stable growth over the last 9 years. It seems that the global financial crisis has not significantly affected Bangladesh mainly due to growth in exports and remittances. Although pressures from the global slowdown are building up and the financial crisis in the developed countries is unfolding and recession lasting longer than expectation, we had a growth rate in the range of 5.5 per cent to 6.0 per cent (data: June 2009). Although external debt is on the rise in recent years, it looks manageable because of declining ratio of exports to external debt.

Compared to the neighboring countries, the Bangladesh capital market is small and has yet to play a bigger role in the economy. The share of domestic debt securities in the country’s GDP was approximately 12% in 2006 and that of India and Pakistan was 35.9% and 26.3%, respectively. Likewise, equity market capitalization over GDP was substantially lower among the South Asian countries. Therefore, Bangladesh has to accelerate to develop the capital market because it has a pressing need for investment resources to bolster its stretched infrastructure resources, to build more power stations, bridges, ports and gas-pipelines to empower the people in the development of enterprise and the creation of jobs. Debt markets are an extremely effective mechanism for matching the long term needs of savers with those of issuers.

Financial Market Profile (2006)

Source: World Bank “South Asian Bond Markets” (2008)

Regulatory bodies of the capital market

The Securities and Exchange Commission exercises power under the Securities and Exchange Commission act 1993. It regulates institutions engaged in capital market activities. Bangladesh Bank exercises powers under the Financial Institutions Act 1993 and regulates institutions engaged in financing activities including leasing companies and venture capital companies. Further to the regulations the following regulations also cover the capital market operation: 1. Dhaka stock exchange Automated Trading Regulation, 1999

2. Dhaka stock Exchange Investors protection fund Regulations, 1999 3. The listing Regulation of the Dhaka Stock Exchange Limited 4. SEC Margin Rules, 1999
5. DSE Settlement of Stock Exchange Transaction Regulation, 1998 6. Dhaka Stock Exchange (Members Margin) Regulation, 2000
7. SEC Corporate Governance Guidelines, 2006
Activities in the capital market:
Activities in the capital market can be classified as follows: 1. Primary market activities
Securities are issued in the primary market by one or more of the following methods: a) Public Issue
b) Private placement
c) Right issue
d) Offer for sale

2. Settlement and securities administration:

a) Settlement: The Chittagong and Dhaka Stock Exchanges each have their own automated trading system. The clearance system has daily netting facilities. The settlement system allows for early settlement of securities and funds. Failed trades are squared up by the stock exchanges and members are penalized for such failed trades.

b) Collection: Dividends on shares are usually paid to the holders annually. Interest on debentures in paid semi-annually. Payments are made by banks cheque. The benefit of the share/debenture goes to the person whose name is on register during a pre-declared book closure period. Interest...
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