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The increasing foreign debt will create problems for Bangladesh unless structural problems in the country’s financial sector are addressed, said economists at an inter-department dialogue at the University of Dhaka yesterday.

“The ongoing IMF credit programme will not become effective if discipline in the financial sector cannot be improved,” said Rashed Al Mahmud Titumir, chairperson of the department of development studies at the university.

The dialogue, held at the Muzaffar Ahmed Chowdhury Auditorium, was organised by three departments of the university, namely economics, international relations and development studies.

Citing how the Covid-19 pandemic exposed structural problems in the economy, Titumir said Bangladesh has long been facing different crises such as the lack of corporate governance in banks and money laundering.

“The volume of the country’s deficit and debt is not the major problem,” he said, adding that the main thing is whether the funds are being invested in productive sectors.

Titumir reckons that things will get critical if the government uses the funds for consumption, such as providing salaries to its staff.

The amount of foreign loans taken by both the public and private sectors has doubled in the last five years.

By the end of December 2022, the country’s total private sector foreign debt amounted to $24.1 billion in contrast to $12.52 billion in 2018.

The government took initiatives to mobilise foreign funds by issuing sovereign bonds during the period of Finance Minister AMA Muhith.

“We might have faced a severe crisis had the bonds been issued,” Titumir said.

Muhammad Shahadat Hossain Siddiquee, a professor of economics at Dhaka University, said the volume of foreign debts in the country is now on the rise.

The country is now availing foreign sources for commercial loans that cannot be restructured, which is not good, he added.

Siddiquee said that it remains uncertain how the government calculates the GDP growth of Bangladesh.

“The required information and data on GDP growth are not provided by the concerned government agencies to understand the trend of the growth,” he added.

Siddiquee pointed out that governments usually set their revenue mobilisation targets by observing the GDP growth.

“But revenue mobilised by the government is decreased when the GDP sees higher growth,” he said, adding that this means the government is not strong enough.

Anis Chowdhury, an adjunct professor at Western Sydney University, presented a keynote paper titled “Developing Countries’ Debt Crisis – Chinese or Western trap” at the discussion.

He said the developing countries’ looming debt crises are being worsened by structural shifts in debt composition towards riskier commercial loans characterised by shorter maturities, higher interest rates, and little or no restructuring options.

Such shifts are due to multiple reasons that can be traced to the deliberate acts of Western donors and the multilateral institutions dominated by them, such as the World Bank and the International Monetary Fund.

One reason is the decline in concessional development finance and broken aid promises, including SDGs and climate finance, Chowdhury said.

Besides, most developing countries have turned to riskier borrowing from international capital markets, and commercial debts now constitute more than half of their public debt.

Such loans are usually of shorter durations and attract higher interest rates while having almost no restructuring or refinancing options, said Chowdhury, a former director at the Macroeconomic Policy and Development Division of the UN-ESCAP.

Chinese debt constitutes less than 20 per cent of developing countries’ public debt and less than 15 per cent in low-income countries.

Chinese loans are quite diverse with only a small part of Chinese loans involving commercial conditions, he added.

Among others, Zia Rahman, dean of the faculty of social sciences, Masuda Yasmeen, chairperson of the department of economics, Mohammad Tanzimuddin Khan, a professor of international relations, Faruk Shah, an associate professor of development studies, and ABM Omor Faruque, an assistant professor of development studies, addressed the event.

Source: Star Business Report

The dollar steadied on Monday as investors awaited testimony from Federal Reserve Chair Jerome Powell ahead of the February jobs report at the end of the week that will likely influence how much more the US central bank will raise interest rates.

The dollar index, which measures the performance of the US currency against six others, was last flat on the day at 104.63, having lifted off a session low of 104.34. The index clocked a weekly loss for the first time since January, last week.

After delivering jumbo hikes last year, the Fed has raised interest rates by 25 basis points at its last two meetings. But a slew of resilient economic data has fed a belief among investors that the central bank might have to switch back to half-point rises.

Futures imply a 76 per cent chance the Fed will raise interest rates by 25 basis points at its meeting on March 22, with a 24 per cent chance of a 50 bps increase. The spotlight will be firmly on the February jobs report scheduled for Friday and Powell’s testimony to Congress on Tuesday and Wednesday.

“Of all this week’s events, it will be payrolls that will be the most important one,” Rabobank currency strategist Jane Foley said.

“Are we going to have a continuation of the February outlook of higher for longer or are the markets going to come back to January payrolls is going to be a bit of an outlier and maybe the economy is slowing,” she said.

In early February, the January monthly employment report showed blisteringly fast job growth and sustained wage inflation, which was enough to convince investors that the US central bank won’t have any reason to cut rates this year.

The dollar has risen by around 2 per cent since then, largely at the expense of the Japanese yen, which has lost over 5 per cent in value against the US currency in that time.

The euro, which has lost around 3 per cent against the dollar since early February, was last flat on the day at $1.0635, while sterling was down 0.4 per cent at $1.200.

Weekly futures data on Friday showed money managers are holding the largest bullish euro position in over two years, which drove the currency to nine-month highs in February. But now that’s leaving it looking vulnerable to a steep sell-off, especially if investors’ outlook for U.S. rates does not shift and euro zone economic data doesn’t show a material improvement.

“At this stage, people probably extended those positions assuming a recovery story and what they’re getting instead is a technical recession followed by some resilience and that’s not good enough,” Rabobank’s Foley said.

Powell’s remarks, meanwhile, will be under scrutiny too.

“He may provide clues as to what employment and inflation numbers need to do to make the Fed act in a particular way, especially how it pertains to whether 50-bp hikes are back on the table,” Deutsche Bank strategist Jim Reid said.

The yen was last down 0.24 per cent on the day at 136.15 per dollar, ahead of the final policy meeting on Friday for Bank of Japan Governor Haruhiko Kuroda.

Elsewhere, China’s yuan fell against the dollar, after Beijing set a modest target for 2023 economic growth of around 5 per cent. The offshore yuan fell as much as 0.8 per cent to 6.949 per dollar, while the Australian dollar, often traded as a liquid proxy for the yuan, fell 0.7 per cent to $0.672.

Source: The Daily Star

Have you ever bought any pack of flour produced by Yusuf Flour Mills or heard the name of Yusuf Moyda, the brand under which the company is selling the item?

If the answer is no, then how could the stock of Yusuf Flour Mills be one of the most expensive on the Dhaka Stock Exchange (DSE)?

On February 28, its share price stood at Tk 2,312 on the SME board of the bourse, becoming the fourth costliest stock on the premier bourse of Bangladesh, leaving household names Berger Paints and Renata behind.

“The surge of the stock of Yusuf Flour Mills to the level of multinational companies shows what’s actually going on in the stock market of Bangladesh,” said Abu Ahmed, an analyst.

“What did the company pay back to its investors in the previous years that could have attracted a rational investor to buy it? Very little.”

Since its listing, Yusuf Flour Mills has announced a cash dividend for its shareholders just once. It gave a 10 per cent cash dividend in 2020, DSE data showed.

Yusuf Flour Mills was listed on the DSE in 1987. Because of the disappointing performance, it was sent to the over-the-counter (OTC) in 2009. In 2022, the company was brought back to the SME board.

The surprise did not end there.

A stock of Yusuf Flour Mills traded at Tk 26 on November 9 of 2022 only to skyrocket to Tk 2,884 in the span of just one month, a spike of 10,992 per cent, or more than 110 times.

“The rise of the stock price was mainly driven by manipulation,” alleged Ahmed, a former professor of economics at the University of Dhaka.

Yusuf Flour Mills could not be reached for comments as its page on the DSE neither gave any contact number nor email address. The contact number on the company’s own website was also found to be switched off.

Yusuf Flour Mills is not alone. In fact, most of the stocks that trade on the SME board have skyrocketed recently although the overall market has been in a bearish mood owing to the low confidence among investors because of the global and local crisis.

The stocks on the SME board surged in the past six months due mainly to speculation that a group of dishonest traders are now targeting the SME board to manipulate prices, according to analysts.

But when people start to invest in them, manipulators dump their holdings, forcing the stocks to plummet, they warn.

In August, the stocks of Krishibid Feed Ltd climbed to Tk 46 from Tk 15 in just three months. Then the stock started to decline and the downward trend accelerated after one of its sponsors announced to sell of his entire stake.

On February 2 this year, Md Musherraf Husain, the sponsor, expressed his intention to sell his entire holdings of 11.50 lakh shares at the prevailing market rate.

After the announcement, the stock slumped to Tk 15, down from Tk 25 before the price-sensitive information.

“When a sponsor sells his entire stake, it shows that the sponsor himself thinks that selling the shares is better than holding them,” Ahmed said.

“It is clear that the hike in the company’s share price has benefited the sponsors. The regulator should not let the sponsors sell their stakes within a short time after the company’s debut.”

Sponsors of the firms that trade on the main board of the DSE can’t sell their shares within three years of listing. The lock-in period is just one year for SMEs.

The manipulation around the SME stocks would hand a huge blow to the small and medium enterprise segment in Bangladesh since investors’ trust in the genuine SMEs would also be dented, depriving them of the cheapest source of capital in a country where small-sized firms find it difficult to raise funds.

The Bangladesh Securities and Exchange Commission (BSEC) launched the DSE-SME, the small-cap board, on April 30, 2019, so that SMEs having a paid-up capital between Tk 5 crore and Tk 30 crore could avail financing from the stock market.

“But manipulators have turned it into a gambling board,” Ahmed said.

Ahmed urged the regulator to curb manipulation related to the SME board and communicate with SMEs to encourage them to raise funds from the market.

“Manipulators have targeted the stocks on the SME board as offloading the securities is easy. The BSEC has allowed general investors to invest in the board if they have handsome investments in the market,” said a stockbroker.

In February of 2022, the BSEC eased conditions by reducing the minimum investment requirement to Tk 20 lakh from Tk 50 lakh. Investors don’t have to take any permission now but it was mandatory previously.

After the relaxations of the rules, the SME Index soared 51 per cent, or 696 points in just one month, prompting analysts to criticise the BSEC move. Later, the minimum investment requirement was raised to Tk 30 lakh.

A huge number of investors still qualify to meet the condition, so they have been lured to the new board, the broker said.

“The board has offered a huge scope to manipulators to make unprecedented gains. But it is contributing little to help SMEs raise funds,” the broker added.

The BSEC worked on Yusuf Flour Mills stocks and found that its price was overvalued mainly because the number of tradeable (free-float) shares is low whereas the number of sellers was a few, said Mohammad Rezaul Karim, spokesperson of the BSEC.

The number of shares of the flour mills is 6.06 lakh, of which 53.8 per cent is held by its sponsors, according to the DSE data.

Though the company reopened its factory, its earnings don’t match the prices, he admitted.

“So, we are working to make the SMEs raise their paid-up capital. But it takes time,” said Karim, urging investors to buy a stock after analysing companies’ potential.

After the launching of the board, 10 SME companies raised Tk 104 crore from the market, DSE data showed.

Source: The Daily Star

বিশ্ববাজারে দাম কম আর সরকারের কঠোর নিয়ন্ত্রণে কমেছে আমদানি। গত বছরের ফেব্রুয়ারির তুলনায় কমার হার ৩৯ শতাংশ।

The asset risk for banks in Bangladesh will worsen amid macroeconomic challenges, the agency noted.

The global economy has witnessed the lowest global growth in 2019 since the 2009 recession. Photo: Bloomberg

Moody’s Investors Service revised the outlook on Bangladesh’s banking system to negative from stable in a report published on Wednesday (1 March). 

Two other banking systems with negative outlooks are China and Pakistan.

The agency, however, maintained its stable outlook on 13 Asia-Pacific (APAC) banking systems.

Additionally, while maintaining its negative outlook on China’s banking system, the agency had revised the banking system outlook for Vietnam to stable from positive and for Pakistan to negative from stable, in January 2023. In total, 13 APAC banking system outlooks are currently stable, compared to 15 at same time last year.

The 13 banking systems with stable outlooks at present are Australia; Hong Kong SAR, China; India; Indonesia; Japan; Korea; Malaysia; New Zealand; Philippines; Singapore; Taiwan, China; Thailand; and Vietnam.

Despite the uneven macroeconomic and operating conditions in many APAC economies amid higher inflation and weaknesses in exports, the stable outlook on most banking systems is supported by the banks’ relatively strong solvency and liquidity, reads the report.

Moody’s expects that operating conditions for banks in Japan and Thailand will improve in 2023.

Moody’s outlook downgrade may prove costly for Bangladesh’s banking system: Experts

On the other hand, the report names Bangladesh among Australia, Korea, New Zealand and Pakistan which will have worsening state of banking operations. 

The report explains that this divergence is driven by a combination of factors including domestic consumption, tourism, housing market dynamics and export performance.

“Most APAC banks’ problem loan ratios and credit costs will increase in 2023, but only modestly, with banks’ large credit reserves supporting overall stable asset risk. Moreover, residual loan restructurings and forbearance measures in Thailand and Indonesia will continue to support borrowers that were affected by the pandemic. While household debt will remain high as a share of GDP in 2023 in Australia, Korea, New Zealand, Hong Kong and Thailand, the credit risk borne by banks will be mitigated by relatively stable employment conditions and/or macro-prudential measures as well as prudent loan-to-value ratios for mortgage loans,” said the report.

Meanwhile, Moody’s expects the asset quality of corporate loans of banks in China, Hong Kong and Vietnam to deteriorate because of property market-related challenges.

Similarly, the asset risk for banks in Bangladesh and Pakistan will worsen amid macroeconomic challenges, the agency noted.

Also Read – Moody’s places Bangladesh’s Ba3 ratings under review for downgrade

Moody’s expects APAC banks’ profitability to remain generally steady after increasing in 2022 as higher policy rates drove up banks’ net interest margins. While policy rate hikes will continue in 2023 in many economies, their increases will not be as significant as in 2022, hence providing only a modest uplift to net interest margins. Moreover, banks’ rising funding and operating costs will limit the upside for profitability. Loan loss provisions will increase as a share of pre-provision income, yet the increases will be moderate for most banks because of their already strong loan loss coverage ratios.

The report concluded that APAC banks will maintain strong and stable funding and liquidity, despite recent moderate weakening amid monetary policy tightening. Banks’ core capital ratios will remain broadly stable because of muted credit growth. Furthermore, government support for banks will remain strong in most APAC banking systems, supporting the credit ratings of the banks.

Source: TBS News

All authorised dealer banks will have to follow this new rate from 1 March

Source: TBS News

Infograph: TBS

Highlights

• Now the 169 scrips’ prices can fall up to 10% a day until hitting the floor price
• Of the 168 scrips, one mutual fund was delisted in the meantime
• Asia Insurance and Far Chemical were added
• New floor will be equal to the average of closing prices from 26 Feb to 1 Mar
• But if the previous floor is lower for any of the 169 scrips, that one will be considered as floor

In an effort to end an ineffective downside restriction, the Bangladesh Securities and Exchange Commission (BSEC) reinstated the floor price for 169 small-cap scrips on Wednesday.

On 21 December 2022, the market regulator removed the floor for 168 stocks and restricted their daily fall limit to 1%.

As a result of the repeal of that order, the prices of those scrips can fall up to the regular lower circuit breaker limit – 10% a day – until hitting the floor price.

Of the 168 scrips, one mutual fund was delisted in the meantime, and the regulator added Asia Insurance and Far Chemical, making it a list of 169 scrips in total.

Now, the average of the closing prices of those 169 scrips for four trading sessions – 26 February to 1 March – would be their new floor prices, according to the BSEC’s 1 March order.

But if the previous floor price, that was announced on 28 July last year, is lower than the new floor, then the lower one would be effective, according to the order.

The 169 scrips represent roughly 5% of the market capitalisation of all the listed scrips in the Dhaka Stock Exchange (DSE).

Stockbrokers and investors said the commission’s 21 December move to withdraw the floor from 168 scrips was a blow to a large number of investors, as 100 of those scrips lost their market value as of 1 March, including the 39 that fell by 20%-35%.

The worst part of the fall was investors were unable to exit from the falling knives as there had been no buyers due to the narrow bottom circuit, investors said.

However, 27 of the scrips were above the 28 July floor on 1 March, and the remaining were flat as the minimum tick price gap was higher than 1% of the scrips’ market prices.

The smallest gap between two prices of a share or mutual fund is Tk0.1 in the DSE and CSE.

The floor prices and the narrowed down lower circuit drastically affected the liquidity in the bourses, as investors were deprived of exit opportunities regardless of whether they needed money to withdraw from investment accounts, or to buy any other security.

When buyers wait for a scrip’s price to fall, they refrain from bidding for it. And at an extreme point of pessimism, the number of DSE scrips having bidders dropped drastically to 62, and 337 of the 399 DSE shares, mutual funds and corporate bonds had no buyer.

However, as the regulator on Sunday and Monday busted market rumours that it might withdraw the floor price from another set of scrips, the market started to recover and 138 scrips had bidders during the closing bell on Wednesday.

79 of the 169 scrips came back in active trading, up from only 15 on Sunday, while of the 232 scrips with intact floor, 173 were stuck there and 59 were trading above floor on the day.

How the market performed on Wednesday

Meanwhile, the daily transaction increased to over Tk450 crore, which fell below Tk300 crore a day during the decline last week.

DSEX, the broad-based index of the Dhaka Stock Exchange (DSE), from its recent bottom of 6,175 on Monday morning, hit 6,234 in the middle of Wednesday session. But adamant sellers dragged the index down to even lower than the previous close.

“The market saw mixed reactions as the session began with an upbeat momentum, but the morning optimism faded as risk-averse investors booked profits, enticed by the recent price appreciation of selective issues,” said EBL Securities in its daily market commentary.

DSEX finally closed at 6,214 which was 0.04% lower, and out of the total DSE scrips, 68 advanced and 80 declined.

“However, opportunist investors continued to take positions in beaten down issues with anticipation of quick gains since they expect positive momentum in the market, as the floor price is likely to be intact for the foreseeable future,” added the brokerage firm in its commentary.

On the sectoral front, IT contributed the maximum 16.2% of the DSE turnover, followed by life insurance and food.

As the late hour selloff wiped out the early hour intraday gains, most of the sector displayed mixed returns at the end.

General insurance registered the highest gain of 1.5%, followed by life insurance and tannery.

Paper with 2.4% correction led the losers, followed by travel and jute sectors.

Source: TBS News