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BB brings cheer to foreign investors

Foreign investors having stakes in Bangladeshi private companies will now get higher returns if they sell
their shares, as the central bank has introduced globally-accepted approaches to value such
firms.Analysts say the move will encourage overseas investment in local companies.Along with the
currently practised 'net asset value approach' for determining the repatriable value of shares,
Bangladesh Bank has adopted two more methods: market value approach and income approach or
discounted cash flow approach.Take an illustrative example under the three methods: If the price of a
company's share stands at Tk 50 based on net asset value, it could be valued at Tk 100 in market value
and Tk 200 in the income approach.The BB will accept any of the three approaches or an average of the
three in valuing the shares, depending on the nature of the company, it said in a notice yesterday.This
is an important change which will contribute to a rise in foreign investment via the private equity
channel as we have adopted global best-practised valuation methods, said Hassan Zaman, chief
economist of the central bank.It is part of the process of prudently liberalising the foreign exchange
regime and the access to equity capital will lead to companies expanding and creating jobs, he
added.Another BB official said the previous method is conservative and allows foreign investors to
repatriate a small amount of their investments in Bangladeshi private companies.
Under the old system, overseas investors could not repatriate the true value of a company, he said.Net
asset value is estimated by deducting all liabilities of a company from its total assets. It is a conservative
valuation, which does not take into account the future potential of a company.However, the method
can be used in certain cases, for example, when a company is not currently operating. The market value
approach is mostly based on the price earnings (PE) ratio, which is a company's market price per share
divided by its earnings per share (EPS).The PE ratio provides an indication of how much investors are
willing to pay for a company's earnings. For example, 15 PE ratio of a company means investors or
buyers are ready to pay 15 times higher than the company's EPS to get a share.Valuation of unlisted
companies in the income approach or discounted cash flow approach is highly sensitive to assumptions
of future cash flows. In practice, the method is not used in isolation and used as one of the drivers to
determine the final price, the BB said. The income approach is primarily driven by three key inputs such
as free cash flow, terminal value and discount rate.Application for repatriation of sale proceeds of
shares will have to be submitted to the foreign exchange investment department of the central bank
with a valuation certificate, issued by a merchant bank or a chartered accountant.The valuation
certificates will have to be supported by full explanation justifying the fair value. Audited financial
statements of the company will also have to be submitted along with the application for remittance
approval, the BB said.The central bank, however, can scrutinise the valuation by another chartered
accountant, if it is not satisfied about the appropriateness of the valuation of shares, the notice added.
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Call money rate surges to 8.25pc

The inter-bank call money rate, at which banks lend and borrow between each other, rose to 8.25
percent yesterday, as some private banks rushed to borrow to meet their overnight demand. Total
transactions in the market also increased in the past one week. A total of Tk 8,452 crore was
transacted in the call money market yesterday, up by Tk 129 crore from the previous day, ahead
of Eid-ul-Azha and Durga Puja. Credit offtake is gradually rising. Also, the seasonal demand
for money is increasing, said AnisA Khan, managing director of Mutual Trust Bank. State
banksAgrani, Janata, Rupali and Sonaliwere the major lenders with Tk 3,924 crore in the
yesterday's call money market. Five foreign banks also lent Tk 668 crore. Inter-bank call money
market remained sluggish in the past several months, and the borrowing costs in this market was
around 7 percent. Bankers attributed this slowdown on their surplus funds. The call money rate
generally increases significantly during festivals like Eid, but it was stable, within 10 percent, in
the last two years. The rate has increased due to demands from tannery and leather
A huge amount of money will flow out of the banks to meet payments for wages and festival
bonuses, said a senior treasury official of Jamuna Bank.The highest call money rate was 7
percent on September 15. The rate jumped to 8 percent on the following day and 8.25 percent
yesterday. The lowest rate, which was 5.5 percent on September 15, rose to 6.4 percent
yesterday. Some bankers expected that the rate to rise further in the next week, the last few
working days before the Eid. Brac Bank borrowed Tk 801 crore, the highest, from the call
money market yesterday, followed by Trust Bank Tk 627 crore, City Bank Tk 602 crore, AB
Bank Tk 595 crore and NCC Bank Tk 450 crore, according to data from Bangladesh Bank.
Of the non-bank financial institutions, state-owned Investment Corporation of Bangladesh
borrowed the highest, Tk 655 crore, followed by Lanka Bangla Tk 245 crore and IDLC Tk 230
crore. Rupali and Sonali topped the list of lenders with Tk 1,150 crore and Tk 1,210 crore.
Of the private banks, Dutch-Bangla Bank lent the largest amount -- Tk 707 crore, followed by
Mutual Trust Bank with Tk 367 crore.
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1) New products to help increase turnover of stock market

The premier bourse will introduce new products to help increase turnover of the capital market.
The new products-- exchange traded fund (ETF), derivatives and options-will also bring
diversifications in the capital market. "We will introduce the new products to successfully face
new challenges so that we can make profits for the shareholders of the demutualised exchange,"
Dr. Swapan Kumar Bala, the managing director of the Dhaka Stock Exchange (DSE), said while
sharing the DSE's future plan of actions in an exclusive interview with The FE. "To set new

goals, our prime focus is to introduce new products that will increase more turnovers for the
capital market. DSE must ensure the efficient corporate governance and attract foreign
investments through coordinated efforts," Mr. Bala said.
"Another significant task is to find out a resourceful strategic investor and the DSE has already
started searching for those one." He said, historically every exchange had some hiccups in
achieving their goals. "DSE has a seven- year business plan to achieve the desired goals. We
hope that the premier bourse will be able to execute its plan timely as all economic indicators are
To attain the target of the demutualised exchange, Mr. Bala has stressed the need for proper
implementation of business plan which also includes future strategies and roadmap. "Services,
product pricing and fee structure, human resource planning, capital expenditure planning,
financial projections and relevant legal and regulatory issues are also needed to properly
implement the business plan of a demutualised exchange," Mr. Bala said. He said to attain the
new targets of demutualised exchange, the DSE has already started its activities by organising
series of meetings with the securities regulator which has taken initiatives to form an automated
clearing corporation for the capital market.
When asked whether the DSE management presently is working independently, Mr Bala said
after the demutualisation only the legal framework of the exchange has been changed to ensure
good governance. "New departments and committees have been put in place for regulatory
functions. The DSE management has been working independently." Asked whether all DSE
brokers would be treated equally in case of taking measures for violating rules, Mr. Bala said,
"As I have already mentioned that a regulatory affairs committee has been formed. This is
completely separated from the exchange's business functions. This committee will take necessary
measures in that regard as per the regulations."
According to the DSE managing director, the major crisis which is prevailing in the capital
market is the shortage of liquidity. "We must address the liquidity crisis, the core crisis of
Bangladesh capital market. On the other hand different regulatory bodies cannot deny their
responsibility for their decisions on overlapping directives, notifications and circulars regarding
the capital market." Mr Bala said market-friendly policies and expansionary measures will have
to be implemented through a fruitful interaction with the regulators, especially the Bangladesh
Securities and Exchange Commission (BSEC).
"In this connection, the exchanging views with stakeholders such as TREC (Trading Right
Entitlement Certificate) holders, brokers, dealers are also necessary," he said. Investors are being
deprived of getting proper information due to companies' fabricated financial disclosures. In this
connection, the DSE managing director requested the investors to file complaints with the
regulatory authority by proving a copy to DSE if they find any unusual or inconsistent financial
"I would also request the investors to follow the principles of investments," said Mr. Bala who
has also stressed the enactment of the proposed Financial Reporting Act (FRA) and Financial
Reporting Council (FRC) by upholding the spirit of quality audit reporting. To focus the

insufficient legal authority in DSE listing regulations, Mr Bala said there are specific regulations
on different subject matter like Regulation 6(xxi) of the Listing Regulations of Dhaka Stock
Exchange Limited for seeking information from the listed companies at any time.
"Sometimes, mode of seeking/collecting information is not articulated categorically in the
existing regulation. Moreover, there is no explicit provision for physical inspection to the listed
companies. However, it is clearly mentioned in the proposed listing regulation which is under the
BSEC's consideration," Mr Bala said.Commenting on the frequent disruptions in DSE trading,
Mr. Bala said technical glitches can happen any time anywhere. "Even in the developed
exchanges, like Toronto Stock Exchange had problems. Or the Oslo Bors, Norway was closed at
11 o'clock on Wednesday, April 16, 2014 due to technical problems. On July 03, 2014, a
technical glitch resulted in the Bombay Stock Exchange (BSE) shutting down trading operations
for about two-and-a-half hours."

Trade confidence rises sharply

Bangladesh's trade confidence rose sharply, by 38 points in six months, which is the second
highest among 23 countries globally. The jump was due to growing demand for its garments
from Western buyers and the recent initiatives aimed at making the country's apparel factories
safer, according to a survey. HSBC's latest Trade Confidence Index, which was published
yesterday, shows that Bangladesh's score increased to 141 in the first half of 2014, from 103 in
the second half of 2013. Only Egypt is ahead of Bangladesh as the economic climate in the
largest Arab country improved in recent times. Bangladesh outpaced the UAE, India, Indonesia,
Saudi Arabia, Turkey, Vietnam, Ireland, Mexico, China, the UK, Brazil, Canada, Malaysia,
Poland, the USA, Singapore, Germany, Hong Kong, Australia, France and Argentina. "The
authorities are introducing more safety regulations to the garments sector and this appears to
have provided an additional boost to confidence," the banking giant said in a report. The Trade
Confidence Index is prepared by London-based TNS, the world leader in market research, global
market information and business analysis, for 23 countries, and is the largest trade confidence
survey globally.

The current survey comprises six-month views of 5,200 exporters, importers and traders from
small and mid-market enterprises on trade volume, buyer and supplier risks, the need for trade
finance, access to trade finance and the impact of foreign exchange on their business. The
fieldwork was conducted between May and July this year and gauged sentiment and expectations
on trade activity and business growth in the next six months.The survey report said shipments
from Bangladesh rose 11.9 percent year-on-year in 2013 and went up at a similar pace in the first
five months of 2014. More than 70 percent of the survey respondents said the outlook for trade
volumes will improve over the next six months, with almost 80 percent expecting the currency to
have a favourable impact on business growth over this period. About 40 percent of the
respondents said that Europe, Bangladesh's biggest trading partner, offers the best opportunity
for business growth over the next six months, while one-third point to Asia and 17 percent to

North America. More than a third of the respondents expect demand in key markets to be higher
over the next six months, while more than 16 percent generally feel more confident about the
coming months. The US dollar is the currency of choice for more than 85 percent of the survey
respondents. Nearly 80 percent see currency movements having a positive impact on trade over
the next six months, while more than two thirds see trade agreements as favourable for
international business. But around a quarter of the respondents cited high costs of logistics,
shipping and storage as potential constraints on business growth.

On the longer term outlook on Bangladesh, HSBC expects the country to grow rapidly over the
remainder of the current decade, and investment, particularly in infrastructure, will continue to
rise strongly to support this. It said industrial machinery is the second largest import sector
behind textiles and will continue out to 2030 with the sector contributing almost 20 percent to
Bangladesh's import growth. China, India, Korea and Indonesia will be Bangladesh's fastest
growing import partners, taking advantage of geographical proximity, the survey report said. The
US, Germany and the UK are Bangladesh's top export partners and this will remain unchanged
out to 2030, thanks to strong demand from the West for garments.
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Credit growth up as lending rates go down

The overall growth in credits from the country's banking system took an upturn, as of the last
week of July, as banks lowered a little their interest rates on loans, bankers said Tuesday. As of
July 24 last, the overall credit growth rose to 11.74 per cent from 10.15 per cent that was on June
30, 2014. On the other hand, deposits with the banks also increased, despite the fact of interest
cuts. The growth in bank deposits stood at 16.13 per cent from 15.81 per cent, according to the
central bank statistics. "The rising trend in credit growth may continue in the coming months if
the declining trend of interest rates on lending, particularly for corporate entities, continues," a
senior official of a private commercial bank (PCB) told the FE. Most of the banks are now
offering lower lending rates to the well-performing corporate entities for expediting their overall
business activities, the private banker explained. The interest rates on credits only for the
corporate entities came down to around 11 per cent recently from 15 per cent early this calendar
year, the PCB official mentioned. However, after all this, the investment situation didn't yet
show a sign of satisfactory improvements. "Actually, the investment situation is yet to improve
at satisfactory level even after eight months of the national elections, held on January 5," the
banker said. Besides, operations of new nine banks have intensified the competition among the
banks in attracting new clients.
"The situation is getting aggravated further due mainly to early payoffs of loans by relatively
good corporate clients through availing low-cost loans from other peer banks," the private banker
observed. The credit-deposit ratio (CDR) of all the banks came down to 70.42 per cent, as of July
24 last, from 70.45 per cent as of June 30, 2014. Higher deposit growth than that of credits
influenced the credit-deposit balance. The central bank earlier set the safe limit of CDR at 85 per

cent for conventional banks and at 90 per cent for Sharia-based Islamic banks. Talking to the FE,
a senior official of the Bangladesh Bank (BB) said the central bank advised the banks to take
necessary measures for boosting disbursement of credits to the private sector in line with the
current Monetary Policy Statement (MPS). The central bank has set the private-sector creditgrowth target at 16.5 per cent for the July-December period of the current fiscal year (FY) 201415. The central banker also said there was a scope to increase the credit flows further to different
areas, including the small and medium enterprises (SME) and agriculture sectors.
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Cost of govt projects rises 42pc

The average cost of implementing government projects has gone up 42 percent in the last five
years, with the tenure for implementation going up by three years on average.The rate of
implementation of projects under the Annual Development Programme in the period was 73
percent, according to the Implementation Monitoring and Evaluation Division (IMED) and the
Finance Division.The statistics came from a keynote paper presented at the inauguration of the
Strengthening public investment management system project, at Bangabandhu International
Conference Centre in the capital. The IMED and Japan International Cooperation Agency
organised the event.AHM Mustafa Kamal, planning minister, said it was true that the cost and
tenure for implementing government projects have been on the rise, which is not desirable.Good
management, a selection of projects that can play an important role in the economy, and work in
a self-motivated way are necessary, he said.An eye should be kept out on getting quick returns
on the investment made, Kamal said.How much employment the projects have been generating
and how much the GDP is increasing also have to be considered. MikioHataeda, Jica's chief
representative in Bangladesh, said the government will have to pay attention to project
implementation right now to make Bangladesh a middle income country by 2021.There is no
alternative to improving government investment management for this, Hataeda
said.SayedulHaque, joint chief of the Planning Commission, and Toshiyasu Kato, team leader of
the strengthening public investment management system project, presented a keynote paper at
the programme.The steps of formulation of the projects have to be expedited to achieve the
project's overall goal, Haque said.
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Foreign exchange rules to see changes

The government will soon amend foreign exchange regulations to make those time-befitting as
the old rules are not enough for the current international trading system, a finance ministry
official said yesterday.The draft of the amendment has already been prepared, said M
AslamAlam, secretary to the bank and financial institutions division under the finance
ministry.He spoke at a seminar on "factoring: a better alternative to letter of credit" at the office
of the Dhaka Chamber of Commerce and Industry (DCCI) in the capital. We are seeking
opinions from businesses about the changes to the regulations, Alam said.On the introduction of

factoring to export and import business, as an alternative to letters of credit, Alam said the
system will be "a bit expensive, but risk-free".Factoring is a transaction in which four factors -importers, exporters, importing banks and exporting banks -- are involved in the settlement of
payment in international trade. By contrast, too many factors are involved in the LC system,
which delay a transaction.Bangladesh now follows the foreign exchange regulations introduced
in 1947.In international trade, factoring is practised widely as the system provides a simple
solution no matter whether the exporter is a small organisation or a major one.In his keynote,
Prashanta Kumar Banerjee, director of Bangladesh Institute of Bank Management, said
acceptance of factoring in international trade increased 60.91 percent in European countries, 8.81
percent in the USA and 26.80 percent in Asian countries in 2012.
In Bangladesh, some non-bank financial institutions are following the factoring system for
payments in domestic trade, but the country is yet to follow the system in international trade, he
said.The acceptance of factoring in China rose 60.15 percent in 2012, he added.The
international figures indicate that the practice of factoring has been increasing worldwide for its
easy and risk-free payment method. So, Bangladesh should also amend rules and join the
international factoring association, Banerjee said.He said LC-based exports are gradually
decreasing as international traders are not ready to do transactions under open-account trade.
International factoring can be introduced on a test basis.MS Siddiqui, a member of the
standing committee of the DCCI on export policy, said factories based in export processing
zones are now following the factoring system in international transactions.The importers of
Bangladesh have to pay millions of additional dollars to international trading partners for some
unfavourable rules in the LC system, he said.
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