As the country's bourses have been witnessing a downtrend in indices since January, Bangladesh Bank (BB) governor yesterday expressed concern over high interest rates on deposits and savings instruments, saying the high rates are hampering capital market growth.
"Participation of small investors in the capital market has been hampered by the availability of relatively high real return on deposits and other savings instruments," said BB Governor Salehuddin Ahmed.
Recently, the banks have been informed of the central bank's concern over the issue, he said adding, "In response, the banks have reached a consensus to rationalise the interest structure."
The capital market stakeholders have long been saying the high interest rates on deposits and on savings schemes are encouraging small investors to divert their funds from stock markets.
The governor was speaking at a seminar titled 'Development of Capital Market in Bangladesh' jointly organised by the Securities and Exchange Commission (SEC) and Standard Chartered Bank in Dhaka.
The BB governor said much dependence on banking system for long-term loans is fraught with risk that may lead to serious liquidity problem.
"A well functioning capital market is imperative not only for the banking system but also for the entrepreneurs as it enables them to raise debt without fixed repayment obligations," he said.
Emphasising an active secondary market for government securities, Ahmed said an IMF expert is closely working with BB to identify and remove obstacles that are acting as deterrents towards further activating secondary market for government securities.
Terming the capital market's 6 per cent contribution to GDP too low, he said in India, Pakistan and Sri Lanka the rate is 47 per cent, 20 per cent and 15 per cent.
The BB governor also urged the mobile phone operators and services sector companies to go public.
Addressing the function, SEC Chairman Faruq Ahmad Siddiqi said adequate supply of good securities is important to ensure market stability.
The SEC chairman also underscored the need for true and fair reflection of companies' strength in their financial statements. "To ensure this, creation of an independent regulatory board is being considered and a project is already under implementation to establish a financial reporting council," he added.
Osman Morad, chief executive officer of Standard Charted Bank Bangladesh, also spoke.c
