Bangladesh Bank Training Academy Journal

Abstract: In recent years, a number of low and middle income countries issued Eurobonds to ease their financing constraints. Low returns on investments in advanced industrialized economies and excess global liquidity encouraged global investment banks to create new markets for high-yield sovereign bonds from low and middle income countries. While sovereign bonds enable the governments of these countries to raise large sums of foreign capital at relative ease, terms and maturity structures of these debt instruments seldom compare favorably with concessional loans these countries receive from multilateral and bilateral development partners. The paper reviewing 31 sovereign bond issues from 17 low and middle income countries during 2006-2013-identifies the key macro and microeconomic determinants of the borrowing costs of sovereign bonds, explains the risks of entering the international capital market and recommends a set of policy options and strategies for the Government of Bangladesh, as it considers to issue a sovereign bond in 2013.

Citation: Rashid, H. (2012). A sovereign bond issue for Bangladesh? Determinants, risks and strategies. Thoughts on Banking and Finance, 1(1), 11–32.

Abstract: The objective of this study is to explore the inflation-economic growth linkage, if any, in Bangladesh. With this view, various tables and charts, correlation matrices, pair-wise Granger Causality tests and a quadratic regression equation estimated by OLS based on time series annual data covering the sample period from 1976 to 2012 are used. The results of all the data including regression analysis convincingly demonstrate that the relationship between inflation and growth is non-linear with an existence of a threshold level of inflation within the range of 7-8 percent. This implies that targeting too low an inflation level (relative to the threshold) would be hurtful for growth in terms of potential cost of forgone output and, at the same time, too high level of inflation would also impede economic growth.

Citation: Younus, S., & Akhtaruzzaman, A. (2012). Estimating growth-inflation trade-off threshold in Bangladesh. Thoughts on Banking and Finance, 1(1), 33–41.

Abstract: This paper examines the dynamic causal relationship between capital stock prices and macroeconomic activities in Bangladesh. Though the empirical literature on this issue is voluminous, however for Bangladesh it is quite nascent. Only a handful of studies for Bangladesh [Chowdhury (1995), Mohiuddin et.al. (2006), Rahman and Uddin (2009), Ali (2011), Afzal and Hossain (2011)] has been conducted of which most of them suffer either from omitted variable bias or from the methodological deficiencies. This study is an improvement of the early studies in terms of data used and from methodological point of view. The major objective of this paper is to examine the short run dynamics of the long run relationship between the macrovariables such as the gross domestic product (GDP), money supply (M2), consumer price index (CPI), exchange rate (EXR), interest rate (IR), private sector credit (PSC) on the variability of the stock price (SPI) in Bangladesh. That is to see whether they are cointegrated or not. It also sheds lights on the causal relationship among the considered variables using annual time series data for the period 1985 to 2010. The empirical results show that all the time series data are nonstationary and cointegrated with a single vector. All the explanatory variables have been found to contribute to the long-run equilibrium relationship. The estimation of the error-correction model further confirms the existence of long run stable equilibrium among the variables in the model. It is confirmed that any disequilibrium is corrected by fast adjustment. The Granger causality test also indicates that the lagged change in GDP, M2 and PSC has significant predictive ability for the movements in the stock prices. However, the bidirectional causality has not been established. The implication of the result is that monetary policy has strong stimulus in stabilizing and smooth functioning of the stock market in Bangladesh.

Citation: Hossain, M. A. (2012). Dynamic linkages between macroeconomic variables and stock prices in Bangladesh: An empirical analysis. Thoughts on Banking and Finance, 1(1), 42–57.

Abstract: The present paper is an attempt to measure the technical, allocative, and cost efficiency of Islamic banks operating in Bangladesh. The research is conducted by using of nonparametric technique DEA (Data Envelopment Analysis) as a mostly used tool for analysis of efficiency in banking. Two outputs and three inputs have been used for the purpose of the analysis according to the input-oriented approach. The authors have selected seven Islamic Banks listed in the Dhaka Stock Exchange for conducting the study and the secondary data for the same was related to the year 2006 to 2011. Through the study, EXIM Bank Limited was found to be most efficient Islamic bank with an average efficiency score of 0.9992 on the basis of the efficiencies to which they were put to test. ICB Islamic bank Limited was found to have the highest lack of efficiency among all the Islamic banks in Bangladesh.

Citation: Akhter, M., & Al Masum, A. (2012). Measurement of technical, allocative and cost efficiency of Islamic banks in Bangladesh using data envelopment analysis (DEA). Thoughts on Banking and Finance, 1(1), 58–69.

Abstract: The objective of the paper is to evaluate the financial stability in the banking sector of Bangladesh on the basis of Macro-Financial Indicator (MFI) and Macroeconomic variables (MEV) of the IMF. The time period 1997 to 2012 has been taken in analyzing MFI while in analyzing MEV, the time period 1990-2012 has been considered. The analysis of trend in MFI indicates that banking sector in Bangladesh demonstrated a moderate level of stability in the recent years despite of dismal performance of State Own Commercial Banks (SCBs) and Development Financial Institutions (DFIs). The Private Commercial Banks (PCBs) and Foreign Commercial Banks (FCBs) stand on sound footing in resilience in terms of MFI's performance. The paper finds that correlation coefficient between Nonperforming Loan (NPL) and Gross Domestic Product (GDP) is -0.67 for the sample period 1991-2012 implying that increase of GDP pushes down NPL that ensures financial stability in banking system in Bangladesh. The correlation coefficient between real lending rate and GDP is -0.52 and the correlation of real lending rate with NPL are 0.63 which implies that prevailing high lending rate is distressing for the banking system. An estimated correlation coefficient between Current Account Balance (CAB) and NPL is -0.72 which implies a good position or surplus in CAB leading to decrease NPL in the banking system which helped financial stability in the recent time.

Citation: Begum, N., & Islam, M. E. (2012). An assessment of financial stability in the banking sector: An empirical analysis. Thoughts on Banking and Finance, 1(1), 70–93.

Abstract: The article unveils the circumstances which led to emerge Islamic banking and finally comments on its future. Basically Islamic banking is the outcome of the efforts to materialize the concept of 'banking without interest'. In today's global society, economic life is absurd without banking which is fundamentally based on interest. But interest is prohibited in Islamic life. This dilemma caused the emergence of Islamic banking as an alternative discipline. Initially Islamic banking drive was confined within mere designing of different interest-free modules as alternatives to corresponding conventional banking products. At least some of those modules are now seen producing better result than those of traditional banking in terms of resilience, justice and distribution of wealth. Recent growth trend of Islamic banking is also excellent. All these indicate a bright business future of Islamic banking. But business success is not enough. Eventually to fulfil Shariah objectives of Islamic economics as a whole, Islamic banking must do more including gradual enhancement of PLS or profit loss sharing based activities.

Citation: Haq, A. (2012). Emergence of Islamic banking: Why and how? Thoughts on Banking and Finance, 1(1), 94–107.