BANGLADESH BANK is yet to prepare guidelines on the issuance of commercial papers — an unsecured debt instrument — by companies to banks for taking loans said a media report. Although the use of the instrument has increased since its inception in the country in 2013.Banks are giving loans against the commercial papers without taking any collateral, a rampant use of the instrument for risky ventures would bring instability to the country’s financial market. In financial terms, a commercial paper is an unsecured promissory note with a fixed maturity of around 365 days.A commercial paper is an instrument which is used by a corporate group to take loan from a bank while another bank has to act as an Issuing and Paying Agent (IPA) in favour of the group. The bank which purchases the commercial paper will receive the amount of loan from the IPA bank if the corporate group fails to repay the loan in due time.The corporate groups rated high by the reputed credit rating agencies in the developed countries are usually allowed to issue commercial papers in accordance with the rules and regulations set by the financial regulators of the countries. The commercial papers played a role in fuelling the recent economic recession in North America and Europe as a number of conglomerate groups and banks became defaulters due to their failure in repaying the loans taken against the papers, the report said.In the developed countries, the corporate groups are now allowed to issue commercial papers if they hold no defaulted loan in last 10 years. The corporate groups have to show healthy profits in last few years to get approval to their commercial papers.The central bank should also work out the amount of commercial papers enough for the country as a huge number of commercial papers usually creates obstacles to achieving the expected GDP growth.Fresh investment to set up new industrial unit will also face crisis if banks give more attention to the short-term commercial paper instead of long-term financing. The long-term financing is usually made to set up fresh industrial units which boost up the GDP growth. So it is essential that the commercial banks issue papers to reputed companies, which have no record of defaulting on their loans while simultaneously showing that they have the ability to create tremendous value addition to the areas they cater to. Our experience in this regard is no good either. It is also clearly understandable that our banking system — especially the public banks, are incapable of regulating themselves financially — as evinced by the fact that they have huge numbers of outstanding bad debt as a percentage of their total collateral. Therefore the intervention by the Bangladesh Bank to set up new regulations guiding the use of these papers is essential and desirable. We strongly oppose creating such easy way to defraud and deceive the marginal savers/investors through such ‘unsecured documents’ or so-called ‘company papers’. We bore the burnt in 1996 and 2010 very deeply.Nobody is sure what Bangladesh Bank has done as a regulatory body for the good management of banks in the country. The people are worried to keep their money in banks because they know how banks are embezzled as a matter of routine. Bangladesh Bank is getting away with all the failings and negligence because we have a Finance Minister too nice to be efficient and a government that does not know what governance means. So bureaucrats are protecting each other’s failures. Every public functionary must not think politics will protect them all the while.
