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Preparing Financial Markets Governance Program for Bangladesh

MANILA, PHILIPPINES (29 January 2004) - ADB has approved a US$550,000 technical assistance (TA) grant to Bangladesh to help prepare a Financial Markets Governance Program (FMGP).

Building on a Capital Market Development Program loan approved in 1997, the TA will lay the groundwork for a sector development program to promote good governance in the country's financial markets.

The aim is to raise investor confidence, enable Bangladesh to compete effectively for funds in the international markets, and encourage greater investments in its domestic market. ADB will target activities that

• Strengthen regulatory and supervisory capacity
• Improve governance and operations of market intermediaries
• Boost corporate governance and public disclosures
• Raise accounting and auditing standards to comply with international norms
• Enhance market knowledge, institutional capacity, and skills of market participants.

Weak financial markets governance is restricting the even pace of market development and propagating inefficiencies in financial intermediation. Fundamental problems of Bangladesh financial markets dampening further growth in investment include weak enforcement, poor corporate governance, sluggish development of the market infrastructure, and low level of capacity of market players.

The Securities and Exchange Commission, the two stock exchanges, the mutual funds and asset management companies (including in particular the Investment Corporation of Bangladesh), and nonbank financial institutions are the major market regulators and intermediaries that the TA will diagnose in depth to improve governance.

"The challenge of altering entrenched corporate as well as management behavior is immense, and the process will be a long one," says V. T. Velasco, an ADB Senior Financial Economist.

"The TA will try to find best practices to alleviate further market fragmentation and properly equip the institutions to function effectively and efficiently in the long run."

The assistance will review conditions that give rise to an uneven level playing field between government-owned institutions and private companies, and between nonbank financial institutions and banks.

In order to enhance market competition, the TA will suggest feasible ways to make incentives and market access uniform across different financial institutions. Actual and potential conflicts of interest will be identified, and remedial measures to eliminate or safeguard against conflicts of interest will be proposed.

Findings and recommendations from previous and ongoing TAs of ADB and projects of other donors on these areas will be reviewed to avoid any possible overlaps.

The total cost of the TA is estimated at US$690,000 of which the Government will contribute about US$140,000.

The Finance Division of the Ministry of Finance will be the Executing Agency for the TA. A steering committee including various ministries, professional bodies, and chambers will be set up to monitor and guide the TA, which is expected to be carried out over five months from January 2004.