October 29, 2008

Bangladesh Bank may pick S&P, Moody for Sovereign Rating

The central bank is at the final stage to hire two international credit rating agencies - Standard & Poor's and Moody's Investors Service to conduct a credit rating for Bangladesh.

A five-member technical committee, comprised of officials from Bangladesh Bank (BB), Ministry of Commerce and the Institute of Chartered Accountants of Bangladesh, sits today to recommend these two firms to the BB governor for their appointment. The central bank chief will finalise the appointment of the two among the three invited to do the credit rating.

Another firm, Japan Credit Rating Agency did not respond.

“The technical evaluation committee has decided to recommend Standard & Poor's and Moody after scrutinizing their proposals,” a senior BB official said yesterday.

The move for Bangladesh's first-ever credit rating, initiated by the central bank in May to ensure a better credit rating for the country, will help attract foreign investment and mobilize resources from the capital market as well, experts believe.

Such rating was earlier arbitrarily practiced by donors and individual enterprises.

“We need a credit rating for the country so that any organizations or countries cannot do such rating solely on Bangladesh based on their own perceptions,” a BB senior official remarked.

In this context, the BB governor's observation is: “Some ratings unnecessarily branded Bangladesh as a high risk country.”

On appointment of the recommended firms,

the central bank will issue work orders to them after completing negotiations with them on prices and time duration in a month.

There foreign banks -- Citibank NA, Hongkong and Shanghai Banking Corporation (HSBC) and Standard Chartered Bank will offer advisory services to the BB in the total process of completing the task.

Standard & Poor's and Moody's Investors Service will be allowed to do the credit rating job independently, if appointed. However, the reports to be submitted by these firms will be assessed by the central bank for a better rating of the country.

Although credit rating for business organizations is common globally, country-wise credit rating is a bit new. Besides developed countries, some Middle East and many African countries have their own country credit ratings.

Credit rating generally reflects a country's overall economic situation, but socio-political issues also get high focus.

>> Source: The Daily Star, October 29, 2008

October 18, 2008

Banks plan to switch to DIBOR by year-end

Commercial banks have planned to implement the proposed Dhaka inter-bank offered rate (DIBOR) by the year-end to discipline lending and borrowing of funds among them.

The move will help banks control the unusual nature of inter-bank call money rates and know the banks' overall liquidity position, treasurers in different banks said.

Currently, banks have no mechanism to quote rates for inter-bank lending and borrowing, which ultimately forces a bank to borrow at higher rates than that of even the corporate lending.

“We like to implement DIBOR by the year-end. Bangladesh Bank also wants DIBOR to be implemented,” said Syed Abu Naser Bukhtear Ahmed, chairman of Bangladesh Foreign Exchange Dealers Association, the initiator of the move.

The forex trade body has recently formed a technical committee to prepare a report on DIBOR, which will probably be submitted by the month-end.

DIBOR, if implemented, will be the barometer for interest rates that the banks in the country charge each other for term loans ranging from twenty-four hours to five years, according to technical committee members.

This inter-bank market provides a means for financial institutions with excess capital to earn higher rates of return by its lending liquid assets to those in need of funds.

The forex trade body chief, Syed Abu Naser Bukhtear Ahmed, also the chief executive officer of state-owned Agrani Bank Limited, said: “The technical committee is supposed to submit the report this month for a discussion on October 26.”

The meeting will also discuss how DIBOR-based lending and the limit of lending volume would work.

DIBOR is also important because it will be used as the base for variable rates for government and corporate loans and derivative-based products such as credit swaps, according to bank treasurers.

An increase or decrease in DIBOR will result in a corresponding rise or fall in a bank's cost of borrowing.

A treasury official of a private commercial bank who strongly supports DIBOR said the treasury bill rates are no longer reflective of the market-based interest rates.

Source: The Daily Star, October 17, 2008

October 06, 2008

Sri Lankan bank eyes Bangladesh

A Sri Lankan bank is in talks with local non-banking financial institutions to carve out a joint venture, with its focus on investment banking in Bangladesh.

National Development Bank (NDB), headquartered in Colombo, unveiled the plan in a filing to the Colombo Stock Exchange, seeking to operate an investment bank in Bangladesh as a majority shareholder.

NDB's disclosure came after it had conducted a feasibility study to start investment banking.

Over the last one year, the bank has been jockeying for local firms but has yet to make a final deal.

People close to the matter however said the Sri Lankan bank said NDB made progress in talks with some local firms such as Capital Market Services Ltd, a merchant bank.

According to NDB, it has already won approval from the Sri Lankan central bank, subject to obtaining approval from the Controller of Exchange and the Minister of Finance and Planning in the island nation.

But no approval has yet been received from Bangladesh regulators. "We have not received any approval from Bangladesh authorities," the bank said in a statement.

Transactions will take place after NDB gets the required approval and completes the terms and conditions of a joint venture agreement.

NDB is the third Sri Lankan bank, expected to come to Bangladesh, after investments by Commercial Bank of Ceylon and Sampath Bank. Sampath Bank has investment in LankaBangla Finance.

Sources: The Daily Star, October 6, 2008