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Yearly Economic & Market Roundup 2004
J a n u a r y
1 5,
2 0 0 5
Expansion in domestic and external demand, turnaround in investment,
undaunted exports, pickup in industrial credit mark the avenue for growth
The movers
The shakers
 Overall economic performance is back on the track with a
5.5% growth in GDP compared to 5.3% last year.
 The country basks in comfortable warmth with a foreign
exchange reserve of $3.20b at the end of the year, rising
from $2.71b in June 2004 and $2.62b in December 2003.
 Since launching of a fully floating exchange rate regime in
May 2003, local currency remained quite stable without
turbulence.
 Remittances from the expatriate Bangladeshis surpassed
previous records as informal transfer of money has been
continuously checked by a corresponding improvement in
the formal channel.
 Revenue mobilization picks up at moderate rates despite
the perennial deluge and overall reduction of import duty.
 Substantial rise in exports to the EU zone due to a zerotariff and quota-free access and economic upturn in major
importing countries.
 Export earnings from Export Processing Zones (EPZs)
mark telling increase by 18%.
 Import payments grew mainly due to rise in the import of
capital machinery and industrial raw materials.
 Banks fared better, as both deposits and credit grew by
double digits.
 Private commercial banks’ operating profits record larger
growth despite government pressure to reduce lending
rates and curbing other profiteering attitudes.
 Classified loan of DFIs reduced significantly in terms of
percentage and compared to overall advances made.
 Disbursement of industrial term loans grew radically by
more than 62% as an impact of reducing rates.
 Privatization in the banking sector received momentum
as Agrani Bank handed over to private management and
work on Rupali and Janata Bank is on.
 Both nationalized commercial and specialized banks have
come forward and disbursed Tk11.55b agriculture loan to
overcome effects of the devastating floods in the rural
economy.
 Robust FDI proposals from India, Taiwan, UK, UAE and
Egypt to change the overall investment skyline.
 Newly formed anticorruption commission (ACC) starts
working on grafts that annually eat up 2% of the GDP.
 ADB provides assistance package to foster development
of the SME sector that yield 25% of GDP and 40% of the
gross manufactured output.
 The capital market after a long lull jumps back to life with
index shooting from 967 in January to over 1971 at the
end of the year.
 Asset-backed bond launched and government bond listed
with bourses to chart a new line in the investment market.
 High inflationary pressure led by hike in prices of fuel and
utility services may overwhelm the growths.
 Despite armed with specialized law enforcement forces
and a rapid trial court the government could not reign in
the menacing deterioration of law and order situation to
the desired level.
 Economy suffered severely due to successive floods and
faced a setback in terms of growth, evident in the ongoing
food price hike that hit the poor hard and is likely to seep
into 2005 with the government decision to raise fuel price
and subsequent decline in production.
 Below target revenue collection due to flood effects in
terms of loss of production indicating likelihood of rising
borrowing in 2005.
 International oil price hike from $30pb to $50pb raised the
cost of import for fuel and other goods.
 Sales of savings instruments fell sharply after repeated
cuts in interest rates, and if such non-bank sources dry
up, the government might feel compelled to borrow from
the banking system waking up a viscous cycle of inflation.
This might also erode savings propensity.
 Although interest rates on bank deposits have declined
much, lending rates still soar high, as banks’ efficiency
did not improve substantially.
 Extremely slow utilization of foreign assistance due to
bureaucratic red-tapes posed by political interventions
and interministerial conflicts on respective jurisdiction.
 Pace of poverty reduction and social development activities
was slow due to delay in release of foreign funds of some
NGOs.
 Though remittance rose quite fairly, overseas employment
dropped by 6.7% during the year indicating the rise may
not sustain in the longer term.
 As privilege under MFA in the global textile markets goes
from 2005 the future of the RMG sector, the prime export,
becomes uncertain. India and China are poised to grab
the protected markets of Bangladesh.
 Investment in private sector declined during last 5 years
from 16.5% of GDP in 1998-99 to 15.5% in 2002-03.
 Despite Bangladesh became an attractive harbor for FDI
with liberal incentives, the adverse business environment
marked by confrontational politics, corrupt services, etc
could not be purged as yet.
 Bubbles in the capital market seem transitory, as prices
do not reflect the strengths of the listed companies, which
may not help sustain the present public confidence.
 Supply of new shares in the market came down, while the
existing blue chips have already become overvalued in
the bourses leaving investors struggling for good shares.
2
The world resists the war snarls
The year 2004 could have otherwise been of recovery from
the collective injury inflicted upon the poorer states by the
giants in the name of war on terror, but it has passed by
only as a sequel to 2003 with a few exceptions. The global
output growth has been estimated to be around 5% for 2004
against 3.9% of 2003, well above a historical average of
4%, by a projection of the International Monetary Fund
WEO. The advanced economies (that share 55.5% of the
global output) as a group have marked a slight higher
growth, at 3.6%, though USA and UK had a lower growth.
The developing economies, spearheaded by China, marked
a stunning 6.6% and pushed much in the balance.
The world trade growth has been projected for the year to
rise by 8% compared to 5.1% in 2003. Though the export
growth from the advanced economies is expected to grow
substantially, but the marginal growth from the developing
economies is likely to decline, but it should remain at a
double-digit level. While the import growth in the advanced
economies is expected to be 7.6% against 3.7% last year,
in the emerging economies it would rise moderately.
The stock and bond markets performed well in the upperend economies during the first half, partly due to corporate
profitability, but acted reversibly in the third quarter because
of uncertainty in the US monetary policy, surge in oil prices
geopolitical turmoil, and some other factors. This led the
leading currencies, especially yen, euro and pound gain and
US dollar lose in value.
Unlike previous years, emerging and developing economies
are projected to grow at rates higher than the advanced
economies. In 2005, global economic growth is projected to
decline slightly from current year’s projected 5% to 4.3% as
the positive factors are likely to be offset by decline in spare
capacity and the withdrawal of fiscal and monetary stimulus
in the advanced economies. Amongst them, output growth
rate may decline in US, Japan, UK and newly industrialized
Asian economies, while rise or remain unchanged in the
euro area. South Asia’s growth rate is projected to pick up
slightly owing to the impact of higher growth of the dominant
economy, India.
Large current account deficit, high oil prices, and the rising
global interest rates associated partly with continuing high
fiscal deficits in US and euro countries may pose the major
risks that could push the growth performance in jeopardy.
Besides, the geographical uncertainties apparent from the
Iraq invasion by the US-led coalition, the persistent oil price
volatility, continued large current account deficit combined
with a fiscal deficit of similar size in the US continue to pose
a grim threat to topple the global growth. Strong possibility
of a future rise in the global interest rates from the current
low levels could lead to instability in the financial market and
may hurt the world economy that is now moving slowly out
of recovery to normalcy.
Not all are grim, though. Opportunities for sustained global
productivity growth exist resulting from the spread of the
information technology along with emergence of China as
the new global economic leader may very well propel global
economic growth. In the long run, a more open and liberal
trade regime with built-in safeguard for emerging economies
will also put global growth on a firm footing. In this regard
although multilateral trade negotiation in Cancun has shown
some signs of regaining momentum after the collapse of the
Doha round, significant obstacles to achieving a meaningful
negotiation and agreement are still there. Key players can
overcome the obstacles only through political commitments.
Both the advanced and developing countries need to take
advantage of the recovery press forward with the medium
and long-term structural reforms to improve prospects and
resilience of growth.
Bangladesh eyes a new skyline
The year was of a slow yet steady upturn as the story of
resilience from global shocks and recovery from economic
boredom became a tale of yesteryears for Bangladesh. The
macroeconomic factors like revenue, exports, remittances,
foreign exchange reserve, capital and money market have
all charted a changing skyline with new highs. The currency
remained more or less steady despite the exchange was
free-floated a year back. Political clamors also precipitated
in the second half and leash on law and order situation was
put with wielding enforcement. However, a rising trend in
the prices of essential consumer goods throughout the year,
reduction in export prices, sharp increase in food import,
torpor in the privatization process, corruption, and image
problem of the country abroad served their best to thwart
the march to some extent.
The economy maintained its growth momentum during the
year as a part of the ongoing progress in macroeconomic
performance despite some adverse external developments,
e.g. oil and commodity price hike. Real GDP grew by 5.5%
in the fiscal year 2004, up from 5.3% recorded last year.
Telling growth in revenue, exports, imports, and remittances
from expatriates, etc underpinned strengthening of external
sector. But economic activities were not much affected as
apprehended under a higher than expected CPI inflation,
which reached a 6-year high due to successive floods
during September-October. However, the long-term effects
of the floods and the continued high oil prices in conjunction
with the uncertainty regarding export earnings after the MFA
phase out might test the economic resiliency in 2005.
Despite a good start, the agriculture sector that contributes
25% of GDP in 2003-04, suffered blows from the nature due
to successive floods and heavy downpour in August and
September that caused substantial damage to Aman crops.
Agriculture has already showed a dwindling trend in growth,
1.7% in the fiscal year 2003-04 compared to previous year’s
2.9%, the disaster might frustrate the target GDP growth in
2004-05.
The flood also triggered agriculture loan in the second half
of the year, by almost 69% in last 5 months, with 8 stateowned commercial and specialized banks pouring Tk16.47b.
This may, however, help sustain the existing level of GDP
growth.
The final MFA phase out and consequent loss of the market
for RMG could squeeze export earnings and limit import
capacity. In a state of dwindling sovereign loans and grants
and shy private investment, sudden dip in export will exert
an adverse impact on growth of income through negative
multiplier along with associated social cost. At the same
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3
time, delicate price situation may be aggravated due to
short supply emanated from lower imports. External position
may deteriorate with higher need for external funding in the
medium term. In absence of adequate external assistance,
a situation may arise where in absence of massive private
investment, policymakers would have to eventually rely on
painful adjustment through belt tightening, which in turn, will
affect poverty alleviation.
The Poverty Reduction Strategy Paper (PRSP), a countrydriven, comprehensive, result- and partnership-oriented,
long term perspective plan for poverty reduction, has been
nearly completed with setting of thematic groups to facilitate
a broad range of consultation with stakeholders at all levels;
and identifying main pillars of the poverty reduction strategy.
The draft paper lays out a 3-year rolling plan for PRSP for
the financial years 2004-05 to 2006-07 projecting a cautious
GDP growth target of 6% by FY07. It also offers a 10-year
perspective on national achievements in 7 key thrust areas:
employment, nutrition, mother health, raising the standard
of education, sanitation and safe water supply, crime control
and good local governance. For speedy poverty alleviation,
PRSP would employ 4 strategic blocks: accelerating poorfriendly economic growth, developing the sectors that fight
poverty the best, taking measures to protect the ultra-poor
and launch safety net programs for them and overall social
development. The government is expected to finalize the
paper within mid-February 2005. As per the medium term
macroeconomic framework set in the PRSP, the economy
has been projected to grow at a rate of 5.5% in 2004-05,
6.2% in 2005-06 and 6.8% in 2006-07. Inflation will be kept
within 6.5%, 5.5% and 5.0% in the period. By 2006-07 fiscal
deficit would be bottled up at 4.5% while keeping domestic
borrowing at 1.9% and external loans and grants at 2.6%.
During the period export growths have been envisaged at
12% in 2004-05, 10% in 2005-06 and 12% in 2006-07, while
imports at 9.5% by 2006-07. The private credit and broad
money are put at 15.2% and 13.5% of GDP by 2006-07.
The World Bank made a detailed assessment on the draft
and found the progress satisfactory, but urged to take a
more comprehensive approach to tackle the governance
issues and law and order problems, and strengthen efforts
in public expenditure management and in promoting the role
of the private sector.
The MFA phase out might have severe impact on the social
front if the concerted efforts by the garments-producers fail
to yield positive result. The 1.8m labor force engaged in the
sector, predominantly young women, might create a social
juggernaut, once they are dislocated from the industry, since
there are no other suitable sub-sectors where such a large
force can be absorbed.
Inflation let loose on tether
Inflation hit a 6-year high of 7.35% in September, affecting
mainly the poor and the rural people because of hike in food
price. As per Bangladesh Bureau of Statistics, inflation rate
was 7.56% in the rural areas and 6.82% in the cities during
the month, shortly after the devastating flood and incessant
downpour. Such a high rate was experienced last time in
1998 with 8% due to same natural calamity. The situation
was aggravated by the buoyant prices in the global food
market that made food imports costlier. Food inflation index
soared to 9.48% at the national level, 9.54% in the rural and
9.35% in the urban areas. The situation worsened due to a
combination of flood, deterioration of law and order situation,
and the ritual month of Ramadan when prices simply soar
without reasons, coupled with a dismal Aman variety of rice
harvest. The following tables show the general and food
inflation indices in recent years: (%)
Year
2001
2002
2003
2004

Inflation (General)
1.91
3.72
5.35
5.98*
Inflation (Food)
1.17
2.04
5.80
7.64*
up to September 2004
Inflation remains the Achilles’ heel for the government since
their assumption of office. Its containment now remains a
matter to be dealt with fiscal action. The situation may turn
worse if the public borrowing from the inflationary sources
go up in the face of a likely revenue shortfall, higher local
currency expenditure in the face of poor utilization of foreign
aid, higher food prices, and other utility.
Revenue shot but targets missed
Poor import and unprecedented rain left the National Board
of Revenue (NBR) with a Tk5.70b revenue shortfall from the
targeted Tk66.31b in the first quarter of 2004-05. The target,
Tk321.90b, appears somewhat over-ambitious as maximum
duty slab was lowered to 25% from 30% in the last budget,
while target augmented from that of the previous year.
However, the collection marked a 12.0% rise against the
corresponding period of the last fiscal. Out of 3 main heads
of revenue, only the value added tax (VAT) at local stage
could surpass the first quarter target, when some Tk19.51b
was collected as VAT at local stage against a target of
Tk19.05b that is 16.4% higher than that of the last year.
Tk31.03b was collected as customs duty against a target of
Tk36.16b, with a 7.25% growth over the last corresponding
quarter, while income tax (IT) was Tk9.41b, lower than the
target of Tk10.17b. Total collection has been 92.58% of the
target. Meanwhile, though the much-avowed large taxpayer
unit (LTU) for VAT has started its operation in December a
proper guideline for selecting the taxpayers remains to be
set.
Though revenue increased during the year, much of it is to
be eaten up by interest payment on borrowings, which was
almost equal to one-fifth of the total revenue budget, as the
government already made huge borrowing from various
internal sources. The 2004-05 budget has allocated 19% of
the revenue or Tk65.33b for the interest payments, up from
Tk58.32b or 21% in the revised budget for 2003-04.
To control tax evasion, the NBR during the year has set up
a Central Monitoring and Intelligence Audit Unit, which will
conduct research, valuation and assessment of tax, audit
survey and future planning for the Board.
The NBR is expected to bring some major corrections in the
existing system of tax holiday to curb tax evasion as well as
preventing misuse of various incentives introduced for rapid
industrialization. Meanwhile, the Cabinet has given final nod
to the appointment of an Ombudsman at the NBR to deal
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4
with the complaints from taxpayers. The Ombudsman will
start from a separate office, equipped with necessary staffs
and logistics, and will serve for a 4-year term.
Renewed interest in foreign investment
The year saw a vibrant return of foreign direct investment
with some exciting proposals of almost $3.5b. The largest
investment proposal came from Tata Group, India's largest
conglomerate, with $2.0b in the energy, fertilizer and steel
sector. It has signed an expression of interest (EoI) with the
Board of Investment (BoI) and carried a primary feasibility
study. It intends to establish a $700m steel plant with a
production capacity of 2.4m tons, $700 power plants and a
$600 1.0m-ton fertilizer plant. Jindal group of India came
with proposals of $800m. Taiwan has expressed strong
interest to invest over $3.0b in next 6 years in the textile
sector, of which some $100m by the first quarter of 2005
with a total target of $1.0b by 2007 and another $3.0b by
2010.
Egyptian telecommunications giant Orascom Telecom has
acquired all shares and operational rights and services of a
local mobile telecom company for $60m to add another twist
in the fierce battle for supremacy in the sector. It has also
expressed desire to invest $250m in next 2 years and
provide services to 4 million subscribers. It is also keen to
invest in building material, tourism and fertilizer sectors in
phases. The potential market size of the telecom industry is
likely to be Tk108b by 2007, which is now only Tk15b.
Bangladesh eyes foreign investment worth $800m in 2005
with more capital inflow from Europe and USA in information
technology and infrastructure sectors. BoI got investment
proposals worth $442m in 2003 in 128 foreign projects,
exceeding the target by 10%, and the 2004 figure is expected
to be around $600m, up by 50% from the last year's target.
Bangladesh is being increasingly recognized as a productive
country having a cooperative people, cheap labor, EPZ
facilities with investment-friendly climate, and easy access
to developed markets.
Asia Energy of Britain has taken lease of Phulbari coalfield
located in Dinajpur region and intends to set up two large
power plants of about 1,200mw each. France is also keen
to invest in different sectors like pharmaceuticals, cement
and development of ports in this country. Late in December
a large delegate from Malaysia came to explore investment
opportunities in Bangladesh. It has a large portfolio in the
country of which $29.0m was invested in 2003 alone, 7% of
the total FDI that year in the country. It is looking forward to
invest in hotel, tourism, banking, ICT, electronics, chemical,
infrastructure and healthcare sectors.
Several factors are in the play in influencing the interest of
the foreign investors. First, the country’s latent potential,
which is demonstrated by an average GDP growth rate over
5% in a decade. Second, a rational macroeconomic stability
for over a decade and indications of sustaining. Third, the
fact that the country continues to be regarded as a low cost
production base without much labor problems. And another
important factor is the emergence of a relatively new breed
of entrepreneurs with growing multilateral relationship, and
ability to convince potential investors to roost here. In this
context the country closely rallies with the giant China, India
and Vietnam in Asia.
A WB study conducted in 2003 revealed that Bangladesh is
in the second position among the South Asian states under
the ease of doing business parameter as only 35 days are
required to start a business in Bangladesh, which is 89 in
India, 62 in Bhutan, 50 in Sri Lanka and 24 in Pakistan. In
contrast, cost of launching a new business in Bangladesh is
91% of per capita gross national income compared to the
regional average of 45.4%, and 74.1% in Nepal, 49.5% in
India, 36.0% in Pakistan, 11.0% in Bhutan and 10.7% in Sri
Lanka. South Asian countries have the highest cost on firing
workers, the lowest recovery rate for claimants in insolvency
after Africa and highest cost of enforcing a contract through
court. Besides, Clumsy administrative procedure of starting
new business makes way for corruption. Non-availability
and manipulation of required data, weak property right, less
legal rights in protection for borrowers and lenders, contract
enforcement, and disclosure requirements make it harder to
start, operate, or close a business in this locale. Another
Japanese study found the country to be in an advantageous
position in respect of cost of gas, office rent and wage of
workers but the corporate tax rate (37.5%) to be in a 'very
high range' in all over Asia compared to 33% in China, 30%
in Thailand and 25% in Vietnam. Monthly basic charge for
mobile phones, gasoline price and cost of a passenger car
in Bangladesh are also higher than that of other states in
Asia.
After a two-year delay, the Industrial Policy 2004 is set to be
approved soon with 33 designated thrust sectors that sets out
conditional inflow of FDI outside Export Processing Zones
(EPZs). It envisions 35-40% contribution of manufacturing
sector to GDP and 35% to total labor force by 2015. The
number of the thrust sectors has been doubled in the new
policy despite the fact that among 16 thrust sectors earlier
announced in the 1999 Policy only a few could take off.
Government borrowing
The government was able to bring down its borrowing from
the internal sources by 50% in the July-November period of
2004 over the same period last year through investment
restrictions and low interest rates. Negative borrowing trend
continued mainly because of huge withdrawal of institutional
investment under various schemes following a government
restriction, cut in interest rates on the fixed-coupon savings
instruments, withdrawal of some lucrative instruments and
of incentives for investing undisclosed money in the stock
market. Individual investment was more or less unchanged
reflecting their confidence on the savings instrument as safe
and profitable despite consecutive cuts of interest rate, but
much of the institutional investment has been substantially
withdrawn. The government net borrowing through sales of
various SIs declined to Tk7.95b during the July-November
period of 2004. Gross sales amounted to Tk39.68b, while
withdrawn investments were Tk31.73b. The government
paid interest of Tk15.27b during the period against Tk12.0b
last year. The newly launched Pensioner Savings Certificates
drew huge response with sales crossing Tk1.2b mark in 2
months after introduction. Earlier interest rates were cut in 4
phases by around 5% in the last 3 years. Now there are 5
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5
Export recovers, while import swells
Ever since the unprecedented dip in 2002 following the
September 11 turbulence, export began to recover its pace,
though slowly. Although the export growth was hampered
during mid-September due to unprecedented rains and
impact of flood that hit the country in August, during the first
9 months of the year export registered a 24.6% growth over
the previous year’s corresponding period, from $4,751m to
$5,921m. At the mid-year the government set an export
target of $8,565.78m for the ongoing fiscal year, 13.82%
greater than that achieved in the 2003-04 fiscal. Export
earnings for the last 3 months exceeded its target by 4.86%.
The export portfolio comprised of woven garments, knitwear,
home garments, chemical products, agricultural products,
ceramic tableware, and tea that recorded growth over that
of 2003 exceeding the targets and frozen food, raw jute,
bicycle, petroleum by-products, textile fabrics, and computer
services that marked decline and failed to achieve the
target. The industrial front has received some boost as the
manufactured products recorded a 25.23% growth over the
period while export of the primary goods dipped by 18.72%.
The successive floods in August and September caused a
net export loss of nearly $152m (Tk9.41b), estimated by the
Export Promotion Bureau (EPB). The following table shows
the calendar year-wise actual export and import: (m$)
Year
2000
2001
2002
2003
2004
a up
c up
Export
6,405
6,033
6,066
6,222
5,858a
to September 2004
to November 2004
Growth
17.35%
(5.80%)
0.54%
2.57%
23.30%b
b
d
Import
8,025
8,081
8,555
10,431
11,663c
Growth
6.52%
0.69%
5.86%
35.29%
11.81%b
growth based on corresponding period
growth based on corresponding period
Exports to European Union (EU) countries enjoyed a steady
rise as export growth in the region has been a hefty 67% in
the last 4 years due to stronger currencies and preferential
treatment given to goods from the least developed countries
(LDCs). The EU states imported products worth $4,278m in
the 2003-04, which was $3,282m in 2002-03, $2,853m in
2001-02, $2,960m in 2000-01, and $2,557m in 1999-00.
Export earnings from Export Processing Zones (EPZs) also
mark telling increase, by nearly 18%, rising from $1,200m in
2003 to $1,354m this year. EPZs are expanding and new
EPZs are being considered to expand the facilities.
Knit garment exporters prepared themselves ready for
quota free era by taking industrial term loans, which soared
by a staggering 62% in the third quarter of the year, to set
up backward linkage and export-oriented units. As the
investment requirement for backward linkage in the woven
sector is huge and therefore, investment in this sector has
been comparatively lower. However, the situation still hangs
in the cliff as the garment sector is likely to face with a
sudden crisis, since the domestic industries are not yet
strong enough to handle the global competition. It would be
very difficult for the country to overcome the crisis in
absence of alternative exportable items.
As the MFA phase out was completed, the apparel sector of
the country is expected to experience challenges as well as
opportunities. Although business would have to confront the
global competition, it would help improve quality and create
scope for more market share at the same time. The position
of Bangladesh in post-MFA era would depend on how fast
the local firms become cost-effective, deliver goods rapidly,
maintain high standard of quality and be pro-active in the
product development and marketing.
20.00%
15.00%
Export growth
types of SIs in the market with interest rates ranging from
7.5 to 10.5%.
If this trend continues, the government would be compelled
to borrow from banks to repay the investors, which might
further affect macroeconomic state. Prompted by the drop in
sales of savings instruments, measures have been taken to
enhance sales of SIs without increasing rates. Bullish trend
in the capital market, now around $3.5b, and poor net sales
of savings instruments indicate a clear shift in investment
pattern and its growth potential.
10.00%
5.00%
0.00%
-5.00%
2000
2001
2002
2003
2004
-10.00%
Ex port Grow th
The country also faced a blow in its single largest export
destination, USA, with a decline in income of $534m or 22%
in the last 3 years. Equivalent quality met by competitors at
cheaper price (e.g., China at 46% less), lack of increase in
demand for garment products and phase out of quota in the
US are some major reasons for the decline. The US market
may further shrink due to increased competition from India
(that now holds 4% market share and may reach a likely
16% in near future), China (current 16% and 50% in future)
and some other countries such as Vietnam and Pakistan.
Export income from US was 38.8% of the country's total
earnings in 2000-01 that declined to only 25.9% in 2003-04.
Despite this, riding on a duty-free access to Canada and
Australian markets, export earning growth hit a 6-year high
of 16.10% in 2003-04, fetching $7.6b and surpassing target
by 2.2%.
The year also saw the country attain self-sufficiency in basic
medicines and start exporting drugs and raw materials to 52
countries. Among others, the UNICEF emerged as a major
purchaser of its medicines. The local industry is now able to
export drugs fulfilling around 95% of the domestic demands.
Export volume rose to Tk1.0b in 2004 from Tk0.78b in 2003.
Starting from a solemn export to UK and Singapore in 1987,
the country now covers a significant part of West Europe,
Africa, and Asia.
Export of pharmaceuticals may reach Tk100b annually by
2010, which now average at over Tk615m a year during the
last couple of years. Major competitions in export markets
are from China and India. But producing countries will lose
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6
their rights to sell ingredients at current prices after 2004
when the WTO rules on pharmaceuticals for all countries
becomes effective. However, the least developed countries
need not provide any patent protection for pharmaceuticals
until 2016 as the WTO has extended the deadline only for
them through TRIPS (Trade-Related Aspects of Intellectual
Property Rights). At present the industry, with 250 units led
by the top 5 controlling just 40% of market share, imports
80% of the total raw materials. The market grew from $75m
before the 1982 Drug Control Ordinance (DCO) to $700m in
2002.
The sugar industry also had an encouraging year as, for the
first time in recent history, it exported sugar to various EU
states under the 'Everything But Arms (EBA)' facilities for
the LDCs. This coincides with the recent receipts of large
syndication loans by 3 reputed business conglomerates to
set up sugar mills, refineries, and plants. The export also
conflicts with the fact that the country still makes an annual
import of around 700,000 tons, which is however, inferior to
the local ones. The government is now contemplating on a
likely sugar export policy to help easy access for exporters
into EU countries. The commercial banks reset their interest
rate on all export credits at 7% to promote country’s export.
Remittances soar but marginal growth declines
Acting a major role in the balance of payment requirements
of the country, remittance from the Bangladeshi expatriates
working abroad has maintained its steady growth this year,
which has crossed $3,540m, registering 11.4% growth over
the last year’s $3,170m. Some 272,000 expatriates received
overseas employment during the year compared to the last
year’s 268,000.
A series of measures taken by the Bangladesh Bank to stop
hundi (informal transfer of money) by encouraging expatriate
Bangladeshis to use formal banking channels is attributed
to the high growth of foreign remittance. At least 46 banks
have already made 121 drawing arrangement with different
foreign banks and exchange houses in various parts of the
world to help money transfer by the expatriate Bangladeshis.
The Middle-east states comprise 72% of the total earning
Remittance in U.S$ million
4000
3500
3000
2500
2000
1500
1000
500
0
2000
2001
2002
2003
2004
with Saudi Arabia being the largest source. During the year,
west Europe that constitutes 18% of earning has emerged
as new stimulus for remittance. Contribution from the nonresident Bangladeshis (NRBs) increased by 35%, 26%, and
42% from UK, Germany and Italy respectively in the last
fiscal year. But the new US immigration and money transfer
laws for foreign residents resulted in a paltry growth in the
remittance from US of only 1.96% in 2003-04 against last
year’s 28% and 58%.
The year also had its fair share of disturbance as fall in
manpower exports and deportation of illegal workers has
forced the country to receive less remittance from Malaysia,
Kuwait and Bahrain than the last year. Remittances have
touched a new high during the past few years but with a
declining marginal growth. Meanwhile, the huge unreported
amounts of foreign currency was sent through informal
channels due to lack of exchange houses in different parts
of the world including the US and Canada. The following
table shows the inward foreign remittances of the country
over the past 5 years:
Year
2000
2001
2002
2003
2004
Remittances (m$)
1,955.04
2,068.70
2,847.79
3,171.48
3,501.76*
Growth (%)
8.80
5.81
37.66
11.37
10.41*
* up to November 2004
Current account surplus but trade deficit soar
The increased flow of foreign aid, foreign direct investment,
and remittances led to a surplus current account balance of
$284m during September 2004 against $227m in 2003. A
staggering 194% growth was recorded in foreign aid release
during the first 9 months of the year due to $300m received
from the World Bank and IMF as special program support in
August 2004. Trade deficit was 27% of overall trade till
September 2004. As the government ran into substantial
budget deficit in the past decade without a corresponding
increase in private savings relative to the investment, the
overall trade deficit is on the rise. As per an IMF report
Bangladesh accounted for 7.1% of the total intra-SAARC
export in 1990 that came down to 2.8% in 1996 and then to
2.6% in 2001. In contrast, share of Bangladesh in intraSAARC import was 35.8% in 1990, 51% in 1996 and 49.8%
in 2001.
Exchange rate stable
Transitory volatility and swings featured the currency market
during the year. US dollar-Bangladesh taka exchange rates
in 2004 were primarily driven by market demand and supply
disparity. During the year average USD selling rate to
importers against BDT rose from 58.97 to 61.00, marking a
depreciation of BDT by 3.44%. However, it was not a uniform
trend, rather the market experienced both-way movements
throughout the year. The rate reached a record high of
61.38 during June due to higher demand dominated by the
import of fuels and scrap vessels, leading to appreciation of
USD by 4.1%. But after July BDT started gaining with the
help of improved supply of USD through increased inward
remittances. The downward trend of USD continued till
October, when the average selling rate of USD to importers
came down to Tk59.77.
It was also observed that there were significant differences
among the rates of different banks segregating the market
into two tiers. USD remained the mostly traded currency for
crossborder transactions, though there was growing interest
for Euro, especially for machinery import.
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7
Forex reserve on comfortable cushion
The country’s foreign exchange reserve has experienced
upward trends in recent times. The reserve was $1.55b
during the first week of January 2003, which reached to
$2.56b in the first week of January 2004, after making all
payments to clearing agencies. After long seven years since
mid-1996 the foreign exchange reserves hit the $2.0b mark
during the year. The reserve plummeted to $1.05b in mid2001, lowest in a decade, but began to rise after the current
regime took power in late 2001. The healthy state can be
attributed to the soaring inflow of remittances following the
US invasion against Afghanistan and Iraq, sizeable foreign
assistance disbursement, and an astute import regime that
discouraged all luxury goods and even some food items to
be freely channeled in, and above all, a slow yet steady
growth in export.
However, after the recent withdrawal of LC margin import
may shoot again, as lately rate of growth in import became
almost double that of export. Though higher disbursement
of foreign assistance and remittances may provide leverage
to the reserve for the time being, growing import pressure
may create significant dent in the medium term.
Money market vibrant
The government took a tough stand on money laundering.
Tax exemption and premature encashment facility has been
withdrawn from Industrial Development Bond, as it became
an easy route to for the launderers. And the withdrawal was
made with retrospective effect from 10 June 1999 reverting
the provision that investors need not disclose their income
source and also pay no tax on the invested amount. Agrani
Bank was the sole seller of the 10% 5-year and 7% 7-year
bonds since 1999. Total investment reached Tk2.87b by
early August 2004 since launch.
The development and deepening of interbank repo market,
primary issuance of government bonds up to 10 years and
an insignificant movement in the market benchmark yield
curve also marked the year. The interbank repo introduced
in the third quarter of 2004, received significant response
from the money market operators. During the year liquidity
up to 6 months was generated in the local money market
through repo mechanism.
The market benchmark yield curves did not see any major
movement after sharp decline in 2003, in line with the MoF’s
intention to keep interest rates low to boost the business
growth in the country. Bank rate remained at 5% throughout
the year. The weighted average 1-year treasury bills yield
was 6.25% on 28 November 2004. The overnight market
experienced significant volatility in the first quarter, mainly
due to Eid-ul-Adha, the ritualistic festival of animal sacrifice.
The overall overnight market remained relatively calm rest
of the period, except for little volatility due to fluctuations in
money supply.
In order to develop and deepen the secondary bond market,
the government introduced 5- and 10-year treasury bonds.
To further boost the trading environment the bonds were
allowed to be traded in the capital market. The debut trading
took place with Dhaka Stock Exchange on 01 January 2005
that received positive response.
Ministerial interventions stymie privatization
Privatization as a process was kept at bay during the year
as the government retracted from its earlier philosophy of
divesting through handing over the state-owned enterprises
(SoEs) to the private hands. Instead, the cabinet decided to
take back SoEs that were entrusted with the Privatization
Commission (PC) earlier.
Mass privatization of SoEs became a distant dream, as the
PC virtually became jobless with the Cabinet Committee’s
decision to divest SoEs through liquidation by the ministries
concerned. And since then the PC could not even float a
single tender and different ministries started taking their
enterprises off the divestment list. As per directives, the PC
had to return 12 units to the respective ministries either for
liquidation or operating them afresh.
Since 1993 only 60 SoEs were privatized, of which some 22
during the first 2 years, and the rest 34 in the last 10 years.
After taking office in October 2001, the present government
prepared a list of 94 SoEs for divestment but the PC had
been able to privatize only 13 enterprises during the last 3
years. Though some 16 have been provided with letter of
intent (LoI) during the period, no visible development could
be marked subsequently.
Of the total 60, the PC has privatized 34 industries through
direct tender, 18 through handing over government shares
and 8 to their workers and employees. The government
seems to prefer closing down the loss-making ones instead
of selling it to the private owners, since the subsequent fate
of these units under the private hand often remains
obscured. Earlier this year, the finance minister promised
liquidation of 97 SoEs in two years and if that was not
possible due to political circumstances, around 130 SoEs
would be closed down under a revised policy to be
implemented after the next general elections.
The line ministries have earlier taken back 17 SoEs from
the PC’s list. Seventeen more, out of the 29 SoEs still with
the PC, could not be sold because of various problems. The
government seems to have decided not to move with the
privatization any more within next 2 years ahead of the
prospect of elections in 2006. This pushes the fate of some
petroleum marketing companies, sugar mills, paper mills,
environment and forest resources companies that were
already singled out for divestment hang in the balance.
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8
Though PC has no survey or study on whether or not the
privatized SoEs are still in operation, it is learned that the
majority of 60 privatized SoEs remained idle for years or are
already closed that jeopardizes the basic philosophy of the
government policy of encouraging the growth of private
sector. However, majority of the units divested were already
sick or closed at the time of handover. But the new owners,
believed to be less competent entrepreneurs who managed
to clinch the buyout deal through cronyism, failed to revive
them partly due to lack of working capital and partly to lack
of intention. They have used some units for non-productive
purposes. Some of them used the SoE factory land, which
was procured at a nominal price, in real estate business.
Lack of government guideline, proper monitoring/supervision
and support are also responsible for the pitiable state of the
privatized industries. The PC has no wing to supervise the
privatized industries or to provide any logistic support to run
them smoothly. Many closed down industries, divested by
the government, have never seen the light of production.
However, there was compelling reasons for some sectors.
Some of the industrialists who bought the industries through
open tenders urged the government to provide necessary
logistic support and bank loans at privileged rates to revive
the desolate units. The government is introducing a new
policy guideline for reviving some of the closed SoEs with
local and foreign private investment. Some ministries have
showed interest to resume operation of the closed ones,
while others ordered to reopen only some particular units.
There were some remarkable developments in privatizing
the banking sector. After a long deliberation the government
has successfully handed over Agrani Bank to the private
management of PricewaterhouseCoopers. Rupali Bank has
already started the privatization process, while Janata Bank
is just going appoint the consultants. However, bringing in
dynamism in NCBs by the new management will depend on
the critical issues of authority over the entire management,
early retirement and recruitment, termination and incentive
plans, lending and pricing decisions, level of financial and
government support, etc.
SMEs draw increasing attention
The Small and Medium Enterprises (SMEs) have powerful
impact on the economy that perform a domineering role in
societal uplift contributing 25% of GDP and generating
employment for 32m people, while sharing 80% of export
earnings. Donor agencies in collaboration with trade bodies
and some other agencies intensified their efforts to develop
and promote SMEs. The government also recognizes its
growth potential. Thus a National Task Force (NTF) has been
created in late 2003 to look into their development. The NTF
has suggested framing suitable government policy, defining
SMEs, ensuring their easy access to capital, technology,
and providing necessary infrastructure support and training.
A refinancing scheme of Tk1.0b (with $10m support from
WB and $30m ADB) has already been introduced by the
central bank. Under the scheme, SMEs can procure credit
facilities ranging between Tk0.2m and Tk5.0m from the
banks and NBFIs and the lending agencies can also enjoy
refinancing facilities from BB for loans at the current bank
rate of 5%.
Financial sector reforms top on the cards
Deposit, credit and profit
Despite interest rate cuts on deposits, banks had good
growth in fund mobilizing and extending credits and also did
well in export and import businesses. Total deposits stood
at Tk1,263.99b in September 2004 up from Tk1,140.3b in
December 2003 registering 10.9% growth. Total credit was
Tk1,008.87b, with 12.23% growth during the same period.
The operating profit of the private commercial banks (PCBs)
shot up by some Tk5.0b in 2004, marking a 28.63% growth
over the previous year. Some 29 PCBs earned an operating
profit of Tk22.42b in 2004 against Tk17.43b in 2003.
NPL and provision shortfall
The amount of gross classified loans stood at Tk211.65b,
equivalent to 20.83% of total loan portfolio of Tk1,015.31b in
September 2004 down from 22.13% in December 2003.
The net classified loans dropped to 12.42% in September
2004 from 18.18% in December 2003, though in absolute
terms it soared by over Tk6.7b to Tk111.92b from Tk105.16.
Four nationalized commercial banks (NCBs) have now been
tottering with Tk77.16b net classified loan, which is 21.95%
of their total loans followed by private commercial banks
(PCBs) with Tk19.81b (4.71%), the foreign commercial banks
(FCBs) with Tk1.03b (1.49%) and the development financial
institutions (DFIs) with Tk13.92b (23.55%). Overall classified
loans have risen due to the rise in NCBs and PCBs that
have increased to 13.6% in September 2004 from 7.7% in
December 2003, while FCBs and DFIs recorded 38.3% and
18.9% decline. The following table shows nonperforming
loans of the banks (bTk):
NCBs
PCBs
DFIs
FCBs
Total
December 2003
67.93
18.39
17.17
1.67
105.16
September 2004
77.16
19.81
13.92
1.03
111.92
Growth
13.6%
7.7%
(18.9%)
(38.3%)
6.43%
The PCBs have narrowed the provision shortfall by Tk9.08b
by September 2004 from Tk66.26b in December 2003 and
is sharing only 6% of the total deficit of Tk57.18b compared
to NCBs’ 92.5%. It is the NCBs that caused deterioration in
bad loan situation. The newly revised Money Loan Court
and Bankruptcy Act enforced to quicken and orderly exit of
insolvent business along with bank internal restructuring to
strengthen loan recovery mechanism and drive in recovery
process also contributed in the progress. The following table
shows the provision compliance of the banks in September
(bTk):
Banks
PCBs
NCBs
DFIs
FCBs
Maintained
21.29
3.64
12.38
1.56
Required
24.79
56.55
13.47
1.24
Shortfall 2004 Shortfall 2003
3.5
6.67
52.91
49.81
1.09
0.11
(0.32)
NA
The NCBs signed a memorandum of understanding (MoU)
with the BB and tried to improve the quality in sanctioning
loans, but failed to improve performance up to the mark in
managing the default loans and reduce expenditure. They
also failed to recover bad loans from the top 20 defaulting
borrowers as targeted earlier. However, during the second
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9
half of the year performance has improved substantially.
The BB is planning to be more stringent for banks to further
reduce default loans. It will upgrade the loan classification
standards to the international level. BB may increase the
capital adequacy ratio for the commercial banks and reduce
the loan limit for individual borrowers to encourage banks to
opt for more syndicated loans that has less risk.
Liquidity
Banks’ total liquid assets stood at Tk275.62b in October
2004 down from Tk286.89b in June 2004. Excess liquidity
has dropped by 17.4% (Tk20.49b) to Tk97.05b in June 2004
from Tk117.54b in December 2003. On 12 December 2004
the NCBs’ excess liquidity stood at Tk28.66b, while the
PCBs’ at Tk46.45b and the FCBs’ at Tk21.93b. Such a high
liquidity surplus smacks of scanty investment activities and
non-attainment of the desired economic growth.
Interest rate structure
Among others high interest rates ranging from 10 to 16%,
inclination on big businesses, lack of a proactive/innovative
credit and marketing policy, poor law and order, inadequate
infrastructure support and lack of coordination among
agencies have contributed to the building up of such a huge
idle money. BB had earlier reduced the statutory liquidity
reserve (SLR) from 20% to 16% and decreased the bank
rate from 6% to 5% in November 2003 to raise investment
growth by expanding the lending capacity of the banks. But
all such moves could not bring the lending rates and
investment to a desired level for a ‘go-slow’ policy adopted
by most entrepreneurs due to some noneconomic factors.
The weighted average deposit rate, lending rate and spread
of the banks have come down to 5.65, 11.01 and 5.36%
respectively in June 2004 from 6.49, and 13.09 and 6.60%
in December 2002.
The borrowers have responded to the lower rates by shifting
their allegiance to other banks to procure new loans after
repaying the old ones, and collateral are being swapped
between the banks. The PCBs with comfortable capital base
started the trend, but now the FCBs have also joined the
bandwagon making it a keenly contested battle among the
banks. Banking sources claimed that it was beneficial for
the market as far as the defaulters were not allowed to get
away with their earlier wrongdoing.
Renewed interest by foreign banks
In the light of business opportunities in Bangladesh financial
sector and significant bilateral trade links between the two
countries the ICICI Bank, the second largest bank of India,
formally launched a representative office in Dhaka. Recently
Habib Bank AG Zurich has also opened its representative
office in the city. Besides, United Bank of India (UBI), one of
the 14 major banks, is also poised to start operation here
after feasibility. After a stint of merger, withdrawal and take
over, a total of 10 FCBs are now operating in Bangladesh
along with 30 local PCBs.
American Express Bank (Amex) was expected to dispose
off its Bangladesh operations keeping only correspondence
banking and travel related services at course. The Londonbased Standard Chartered Bank (SCB) and the Hong Kong
Shanghai Banking Corporations Limited (HSBC) were prime
contenders for taking over the Amex operations of which the
latter was known to clinch the deal most likely. Meanwhile,
BB has approved Bank Alfalah, a Pakistani bank, to acquire
operations of Shamil Bank of Bahrain. The FCBs have been
operating in the country either as a branch or a booth, and
so far 14 came in. However, later Soceité General (France)
withdrew its business from the country in 2000 and Muslim
Commercial Bank (Pakistan) in 2001. Earlier Credit Agricole
(France) was taken over by Commercial Bank of Ceylon in
2003. Bank of Nova Scotia (Canada) and ANZ Grindlays
Bank (Australia) have merged with Bank Asia, a third
generation local bank, and Standard Chartered Bank (UK) in
2001 and 2000 respectively leaving the rest 10 to operate.
Regulatory changes in the banking system
 Capital adequacy rules has been amended to calculate
risk-weighted asset-based CAR without considering the
amount in interest suspense account that will give greater
cushion to the banks in meeting their CA needs within the
existing capital base as far as possible.
 Interest payment against overdue agri-loans (including
classified) up to Tk5,000 are to be written off.
 The ceiling of foreign currency permitted into Bangladesh
without declaration refixed at $5,000 from $3,000.
 BB is to introduce risks-based audit system in place of
the existing transactions-based audit for complying with
the core risk management in the banking sector. Some 6
Competency Groups have been formed to conduct audit
in the new system.
 Banks asked to calculate provision requirements on the
basis of accrued interest on deposits as liabilities in order
to reflect the real financial health.
 Banks asked to submit statements on loan disbursement
against savings certificates and fixed deposit receipts, as
huge loan (Tk100m) has been detected to be disbursed
against forged certificates.
 Middle rate system introduced in fixation of lending rates
replacing the existing band system to prevent unhealthy
competition among banks and check anomalies, which
will allow the banks to keep a 1.5% spread on both sides
of the middle rates.
 Credit rating made mandatory for banks to go public for
raising capital.
 Foreign exchange regulation relating to freight charges
collected by foreign airlines has been relaxed to enable
foreign airliners to collect freight charge in local currency,
taka, for carrying of excess baggage in place of deposit it
in blocked accounts.
 Maximum unsecured limit under credit card to a borrower
fixed at Tk0.5m and secured limit Tk2.0m.
 Names of accountholders with likely clandestine money
laundering operations published to warn the banks.
 SLR for Islamic banks to be raised from existing 10% to
12-14% to ensure fair competition among other general
banks that are now maintaining at 16%.
 Possibility of making current account convertible ruled out
though growing evidences show that capital flies away.
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10
To help the sector get rid of existing predicament, Insurance
law reform committee after a 3-years of inquest prescribed
for creating an independent regulatory authority and came
up with a draft ‘Insurance Act 2004’. But insurance experts
and leaders criticized the draft that in their view has ignored
dominant areas of Insurance Act 1938, Insurance Rules
1958, Insurance Corporation Act 1973 and proposals of the
industry leaving the task mostly at the hands of World Bank
consultant. Simultaneous functioning of the department of
insurance and the regulatory authority for one year, silence
over future role of the Sadharan Bima Corporation (SBC) as
the reinsurer of the private insurance companies in the draft
Act considered as critical to efficient running of the industry.
However, insurance experts recommended upgradation and
conversion of Office of the Chief Controller of Insurance into
an independent set-up and conducting reform.
Housing finance
The housing sector had experienced a resurgence this year
as the volume of housing loans disbursed by banks and
other financing institutions marked an 11% rise, reaching at
Tk82.3b during the FY2003-04 over that of the preceding
year, giving a big boost to the growth of the real estate
DSE General Index
2100.00
1900.00
1700.00
1500.00
2003
1300.00
2004
1100.00
900.00
700.00
Ju
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Au
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Se
us
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t
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be
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O
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N
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D
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Ja
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Despite a steady development in the overall financial sector
including insurance, the sector still lacks a sound regulatory
framework. Considering the small market with limited and
uncomely investment gateway, government has allowed the
life insurance companies to invest 70% of their total life fund
(worth around Tk35.0b) in avenues other than government
bond and securities, raised from earlier 60%. Life insurance
remained at a low profile, as only 10 people out of every
1,000 are covered by a life policy in Bangladesh against
100 in India and 150 in Pakistan.
Performance of insurance sector during the year could not
be ascertained yet. However, during 2003 it marked robust
growth of 22% over the previous year due to of high inflation
and rapid expansion of business activities. Gross premium
incomes of both private and public insurance companies
rose to Tk18.80b in 2003 compared to Tk15.39b in 2002.
The large general insurance companies making profit at the
expense of minnows recorded a modest 11.83% growth in
2003, though 15 out of 43 private GICs experienced loss
and 14 maintained status quo. Such a lackluster growth has
been attributed to small market size with too many players
and indicates likelihood of quick consolidation in near future.
Life insurance with 18 companies spurred a remarkable
growth of 28% during 2003. The 38 insurance companies
(25 general and 13 life) which missed the 3-year deadline
for going public in accordance with the Insurance Act were
allowed to continue exemption for one more year.
Two state-owned corporations in general and life insurance,
Jiban Bima Corporation and Sadharon Bima Corporation,
witnessed immense decline in their gross premium earning,
JBC income declined by 17.76% (Tk1.52b in 2003 against
Tk1.79b in 2002) and SBC by 6.78% (Tk766.6m down from
previous year’s Tk818.6m) due to fierce competition from
the private sector, which experienced remarkable growth of
gross premium earnings (28% in life and 11.7% in general).
sector. The housing finance market is concentrated mostly
in Dhaka sharing 80-90% of the total loans. Despite having
a huge demand, a large segment of the population is still
unable to afford due to high rate of interest ranging between
14%-20%. A weak legal/regulatory framework, inadequate
long-term funding mechanism, mismatch in tenure of fund
and lending, the high real estate prices and unsettling rental
sector create further impediments for the advancement of
the housing finance sector. The issues however, are yet to
be addressed properly, though there is increased propensity
of lowering interest rates for the sector.
Fe
b
M
ar
ch
Ap
ril
M
ay
Ju
ne
Insurance sector reforms at snail’s pace
Capital market: the bull wakes up from rumination
The capital market has had a remarkable comeback during
the year after a long 8 years’ lugubrious lull. Partly due to
the recent government initiatives and appointment of a new
chairman at the market watchdog, Securities & Exchange
Commission (SEC) and some concomitant fiscal incentives
also partly to the years-long consistent behavior in the
bourses, investors’ confidence has slowly been restored in
a way that developed the market to attain some maturity.
The atavistic lethargy has been removed, as the market
moved with momentum. But the ratio of market capitalization
to GDP is relatively poor, only 6.74%, compared to other
neighboring countries. However, in the previous year it was
much lower at 2.93%, reflecting the sector’s relative frailty.
DSE general index has gradually moved from 967.88 on 30
December 2003 to 1971.31 on 30 December 2004, marking
a 103.7% rise, the second largest growth after 1996, when
the market had shot by 176.3% in a single year. The market
capitalization of the securities also soared from Tk97.44b in
2003 to Tk224.16b in 2004 marking a 130% rise, seconded
by 197.4% in 1996. However, with 256 securities the market
capital is now 33.3% higher than that of 1996. The following
table shows comparative performance of DSE since 1996:
Year
1996
1997
1998
1999
2000
2001
2002
2003
2004
a
b
Enlisted
issues
205
222
228
232
241
249
260
267
256
Issued
Capital
23,052
28,208
28,626
28,775
31,192
33,255
35,203
45,084
49,846
Market
Cap.
168,106
71,302
50,254
44,781
62,924
63,769
71,262
97,587
224,159
Turnover
30,137
17,403
34,368
38,964
40,365
39,870
34,984
19,152
62,219
Price
Index
2300.15
756.78
540.22
487.77
642.68
817.79*
822.34a
967.88b
1971.31
Weighted average share price index introduced since 24 Nov 2001
New General Index
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Both in terms of turnover and volume of securities transaction
in the bourses hit new high in the past 8 years. The market
capitalization has crossed $3.0b threshold after mid-year
and is now hovering at around $3.6b. The investors’ interest
in the capital market grew stronger as the market started
showing signs of sustained recovery. The following table
shows the market (DSE) at a glance (on 30 December):
Indicators
DSE All Share Price Index
Market capitalization (mTk)
Market capitalization (m$)
No of listed securities
No of listed companies
No of listed mutual funds
No of listed debentures
Total issued capital (mTk)
No of IPOs floated
No of issues listed
Cap raised through IPO (m)
(mTk)
Companies held AGM regularly
Companies with min 10% div
2004
2003
Chng %
1971.31
967.88
103.7
224,159
97,442
130.0
3,627.17 1,680.04 115.9
256
267
4.1
237
249
4.8
11
11
0
8
7
14.3
49,845.89 45,083,73 10.6
3
14
(78.6)
6
10
(40.0)
568.04
1,376.17 (58.7)
191
193
(1.0)
59
106
(44.3)
A number of factors have contributed to this impulsive but
expected rise. Gradual cuts in the interest rates on bank
deposits as well as saving instruments, close watch on fund
transfer through tight Money Laundering Act, introduction of
a central depository system easing investors’ hassles and
legal reforms in the form of lower tax imposed on dividend
declaring companies, etc. have worked towards the recent
development. At present nearly 80% of the total trade in
terms of value in a day is being made through the CDS that
holds more than 60% of the market capitalization. So far
some 43 companies out of a total 237 have been listed with
CDBL for dematerialization of paper scrips. The following
table shows major gainers in DSE during the year:
Company
Rupali Bank
UCBL
Dutch Bangla Bank
City Bank
Uttara Bank
Dhaka Bank
First Lease International
Square Textile
Pubali Bank
Bangladesh Online
Price change (%)
424.15
406.83
359.07
281.76
265.56
237.04
226.81
224.27
222.60
220.74
Turnover (mTk)
820.12
891.78
345.14
552.23
1,361.07
1,461.95
1,789.09
4,089.60
389.31
2,056.85
Almost all Z-category securities (companies that do not hold
regular AGMs or declare dividend) have experienced decline
in prices compared to the soaring market trend. The major
losers in DSE during the year are as follows:
Company
German Bangla Food
M. Hossain Garments
Tulip Dairy & Food
Chittagong Vegetable
Maq Paper
Fine Foods
Raspit Inc (Bd) Ltd.
Padma Printers
Maq Enterprise
Bangladesh Zipper
Price change (%)
(64.14)
(63.74)
(62.35)
(62.20)
(60.34)
(59.70)
(59.26)
(58.97)
(57.65)
(57.00)
Turnover (mTk)
2.64
1.23
1.16
0.58
1.97
13.16
7.00
0.27
3.20
0.44
As a sector, banks and financial institutions, mutual funds,
pharmaceuticals and chemicals, cement, and IT companies,
have performed well during the year. Major impediments as
to the capital market development considered by most of
the market operators were at times nonprofessional and
bureaucratic role of the regulator, a weak regulatory framework unable to ensure corporate governance, an enduringly
low investor confidence and lack of political will. The major
sector performance in DSE during the year was as follows:
Sectors
% of MC
Banks
46.83%
Investment
0.92%
Engineering
3.50%
Food & allied
4.93%
Fuel & power
1.90%
Jute
0.06%
Textile
4.71%
Pharmaceuticals
13.79%
Paper & printing
0.08%
Services & real estate
1.10%
Cement
14.03%
Information technology
0.91%
Leather & tannery
1.66%
Ceramic
0.41%
Insurance
4.13%
Miscellaneous
1.03%
EPS
49.63
44.17
36.37
24.63
81.50
4.01
10.98
33.43
7.23
29.72
2.58
13.33
33.27
9.04
22.55
56.60
DPS
DY
5.69
0.87%
13.56
5.86%
21.04
4.00%
40.08
7.07%
156.95
7.85%
15.00
4.17%
7.65
4.74%
25.24
2.15%
10.00 121.21%
10.16
7.25%
12.83
6.10%
11.84
2.58%
31.51
4.96%
7.94
4.86%
16.87
2.62%
10.85
3.71%
MC = market capital; EPS = earning per share; DPS = dividend per share;
DY = dividend yield
IPO and pre-IPO
The year was also marked by a new trend in IPO situation.
No company other than 3 financial institutions under legal
compulsion to get listed has come forward in the market
either to raise capital or to get listed. As a result the supply
of new securities has remarkably declined. The 3 new issues
have collected Tk568.04m against the last year’s 14 that
collected Tk3,087.67m, despite the market was responsive
with latent demand. The IPO scenario was as follows: (mTk)
Company
EXIM Bank
Mercantile Insurance
ICB AMCL Islamic MF
Total
Private
placement
30
30
Public
subscription
408.04
90.00
70.00
568.04
Capital
injected
628.00
150.00
100.00
878.00
As SEC has of late become cautious in releasing new IPOs
due to a crowding impact of the weak companies listed in
the past, the number of new IPOs has come down. Among
these 3, two have floated shares under legal compulsion,
and Prospectuses published for 3 others with offers of
Tk737.55m, whose subscription will be received in January
2005, are also under the same compulsion.
Though an insurance and a banking company were to offer
rights of Tk330m, they failed to implement. NTV, a private
television channel, also applied for floating share of Tk200m
but was later refused approval by the regulator. IPDC of
Bangladesh Ltd floated asset-backed securities of Tk310m
through private placement, and an infrastructure development
company has floated zero-coupon bonds to raise capital also
through private placement.
ICB AMCL Islamic Mutual Fund, the second close-end fund
of the state-owned asset management subsidiary, was
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12
oversubscribed by more than 8 times against an offer of
Tk70m. ICB AMCL has also launched an open-end fund,
Pension Mutual Fund of Tk200m. AIMS First Guaranteed
Mutual Fund, the only close-end mutual fund under private
initiative, has performed quite well, declaring 15% dividend.
And the much-avowed second private fund, Grameen Mutual
Fund One, has been known to come to the market within
the first quarter of 2005.
Listing and delisting
Listing is compulsory at either of the stock exchanges for all
companies raising capital from public. At present, there are
256 securities listed with DSE and 198 with CSE. During the
year 6 new issues have been listed with the bourses of
which only 2 were subscribed in the same year, while 15
were delisted from the DSE due to closure of commercial
operation for several years as well as violation of the listing
regulations on account of failing to hold AGM, paying
dividend and clearing annual listing fees. The following table
shows the IPO scenario for the past 3 years:
Particulars
No of public issues
Size of public offer (mTk)
Size of public offer (m$)
% of annual growth
Size of pre-IPO placement (mTk)
2004
3
568.04
9.19
(58.72)
30.00
2003
14
1,376.17
23.30
582.41
1,626.50
2002
8
198.00
3.41
(10.00)
252.19
Size of pre-IPO placement (m$)
0.49
27.85
4.35
(98.16)
6,233.4
100.86
(76.30)
13.15
544.95
26,305.7
453.55
2,703.89
19.47
(18.55)
938.19
16.18
(26.52)
4.74
% of annual growth
Public subscription (mTk)
Public subscription (m$)
% of annual growth
Over subscription (times)
Dividend and AGM
During the year some 160 listed companies or securities out
of a total 256 declared dividend ranging from 2% to 180%
against previous year’s 159 out of 267 companies and
securities. A total of 203 companies held AGM this year of
which 32 have declared stock dividend and one rights after
compared to some 18 and 6 respectively in the previous
year. The following table shows the top 15 turnover leaders’
position:
Company
Southeast Bank
Beximco Pharmaceuticals
Square Textile
Mercantile Bank
One Bank
Lafarge Surma Cement
Square Pharmaceuticals
Bank Asia
Prime Bank
Export Import Bank
Mutual Trust Bank
NCC Bank
Bangladesh Online
Standard Bank
First Lease International
Value (mTk)
4,942.53
4,442.11
4,089.60
3,378.46
3,368.54
3,037.41
3,019.56
2,991.05
2,948.29
2,639.47
2,575.47
2,289.94
2,056.85
1,813.72
1,789.09
% of Total
6.38
5.74
5.28
4.36
4.35
3.92
3.90
3.86
3.81
3.41
3.33
2.96
2.66
2.34
2.31
New rules and regulations
 SEC further widened the price movement restriction on
the well-performing category-A share from June 2004,
against relaxation on the category-B, -G and -Z in May.
Securities of all the categories with closing price up to
Tk200 will be allowed to fluctuate by 20% or Tk35, those
closing above Tk200 to Tk500 can move 17.5% or Tk75.
The circuit breaker will be lifted for 24 hours if there is a
price sensitive declaration.
 SEC has banned trading by the insiders like employees,
sponsors, directors, auditors, consultants, and beneficial
owners of the listed companies through an amendment to
the SEC (Beneficiary Trading Ban) Regulations 1995.
 SEC withdrew the provision of declaring annual book
closure for companies that adopted CDS, as CDS
outdated the need for announcement of the traditional 2week book closure and replaced it by a newly introduced
‘record day’ by which a publicly traded company will
record names of the shareholders eligible for dividend
and trading of the shares will remain suspended on the
day.
 All private limited companies will be required to get prior
consent from the SEC before raising paid-up capital
above Tk100m and companies that have already raised
capital over Tk100m will also have to inform the SEC and
provide details of operational activities.
 Mandatory provision of opening beneficiary owner (BO)
account during applying for primary shares reintroduced,
as delay in trading in the bourses and in dematerializing
scrips with the CDS is yet to be overcome.
 Credit-extending facility by brokers, 67% on the value of
a security has been suspended, and the members' margin
requirements increased.
Special moves
 CDS for electronic settlement and registration of securities
made debut on 24 January 2004, and till December 2004
some 43 companies have dematerialized shares.
 Stamp duty on beneficiary owner’s (BO) account opening
with CDBL waived.
 SEC’s approval regarding parties involved in the Pre-IPO
placement made mandatory for companies willing to raise
fund from public.
 Number of members with the DSE to be raised from the
existing 195 to 220.
 DSE-CDBL radio-link operation begins from 30 October
2004.
 SEC's IPO section renamed Capital Issues Department
(CID).
 Pre-IPO placement by the issues during public subscription
evidently discouraged by SEC, as 40% pre-IPO proposals
of the insurance companies were turned down.
 An institute is to emerge shortly for capacity building of
the stakeholders; three foreign consultants, one from
Canada and two from Thailand, have already been
consulted for the establishment of such an institute by the
first quarter of 2005.
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13
Bond market emerges
Trading of the government treasury bond has started in the
bourses from 01 January 2005 that is expected to open a
new dimension for the capital market. Two new bonds with
5 and 10 years of maturity bearing 7.5% and 8.5% interest
with semiannual coupon however drew lukewarm response
as they carry high tax and are of relatively large
denomination. The government introduced these bonds
earlier, but only banks and NBFIs were active investors to
fulfill their statutory liquidity obligations.
Several concerns, including the current tax on debt
instruments and developing a new trading system for bonds
in the bourses have been identified to help create the
market. Already withholding tax on approved securities and
bonds have been curtailed to a flat rate of 20% for both
individuals and institutional investors against previous 25%,
37.5% and 45% for individuals, corporations, and banks and
financial institutions respectively. As bonds offer guaranteed
return, they should woo investors, though it might take time
to pick up due to lack of knowledge about trading on the
debt instruments. Trading on bonds requires lot of
preparations such as analysis of cost factor, internal return
and taxation etc. for which most local market operators are
not well-equipped as yet.
While the country is going to experience rapid development
of the debt market, the lack of accountability of Trustees
has been identified as one of the major causes for making
the debenture market unresponsive, as some issuers have
failed to meet the payment obligations in time that the
Trustees ignored. Besides, the absence of a yield curve, the
overlapping roles of BB and SEC as regulators, an ingrained
habit of holding bonds by the buyers, high bank deposit
rates, huge non-transparent public borrowing at high rates
and lack of proper regulations were behind the belated
emergence of a secondary debt market as yet. The matters
are now being addressed with enhanced awareness.
The insurance companies have been advised to invest their
inactive funds in such bonds to boost the market, as the
decreasing interest rates on national savings certificates,
their major investment area, are affecting returns. The 19
life insurance companies have a total fund of Tk25b, while
43 general insurance companies have about Tk12b. Were
such a large number of insurance companies able to invest
in bonds, the market would certainly have a positive effect,
which in turn should bring in more investors.
The 2005 capital market resolve
The market operator and investors see 2005 as a year with
huge potentials and hope to end the drought of quality
securities in the stock markets. They also look forward to
overcoming the sluggishness in the floatation of IPOs last
year when only 3 companies were floated. The focus of the
year will be to infuse more issues and other tradable
instruments of fundamentally strong companies. SEC has
been considering reduction of IPO related costs to inspire
potential companies to float primary shares. It is also taking
steps to encourage companies to float securitized bonds
and the government to offload its holdings in different
companies. At present the government holds 7.6m shares
worth Tk341.62m in 7 listed companies. AIMS of Bangladesh
is likely to bring a couple of mutual funds and a securitized
bond in the secondary market. At least 3 banks and 5
insurance companies are due to float in the year. The year
2005 may not see any new IPO other than financial
institutions under legal compulsion until snags related to
floatation are duly addressed by the concerned parties.
[Sources used include daily newspapers, preferably The Financial Times,
The Daily Star, The New Age, Daily Jugantor, etc; the Monthly Review by
DSE throughout the year, Quarterly Reports by SEC, Monthly Economic
Indicators, Annual Report 2003-04 and the Scheduled Banks Statistics of
Bangladesh Bank, etc.]
Yawer Sayeed, Managing Director & CEO
Wasiq al Aazd, Head of Operations
Laila Mahmuda Shilpi, Manager, Research
Zakia Rashid, Executive Officer, Research
Gazi Afshana Banu, Executive Officer, Research
AIMS Mission & Vision Statement
Our Mission:
To be a household name in Bangladesh and be
recognized as a reliable companion in the pursuit of
wealth creation.
Our Goal:
To take the extra mile to meet the customer’s needs
through continuous innovation of suitable financial
products and offering the best services.
Our Values:
To strive for achieving and maintaining the highest
ethical and moral standards to earn the trust of our
clients and patrons.
Published by AIMS of Bangladesh Limited
in association with
Aims Information & Marketing Services
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