‘Central Bank should regulate debt market’
The corporate debt market should be regulated by the Central Bank,
rated and given to primary dealers, which will help develop it, said CEO
RAM Ratings Lanka Adrian Perera. The debt market is 3-4 times bigger
than the Colombo Stock Exchange (CSE), but the Central Bank is not aware
of who is raising the funds. All debt instruments, therefore, should be
rated so that the Central Bank is aware of who is raising money.
Although the equity market is relatively developed, the debt market
in Sri Lanka is still in its nascent stage. There is scope to develop
this market. The Securities and Exchange Commission (SEC) promotes the
equities market through the CSE, (Colombo Stock Exchange) but not the
debt market. As of now there are no champions to promote the debt market
though we have regulations on par with the USA.
Perera said that if corporate debt is handled by the primary dealers
it will open more avenues to increase their income. They can use a
percentage of their portfolio as corporate debt paper.
The regulator should relax regulations on pension funds, insurance
companies, EPF and ETF funds so that those monies can be invested as
they are big funds and long-term investments.
In addition, ratings should be promoted by the SEC and the CSE as it
brings transparency which in turn will help attract quality investors.
He said that when the bond market develops 10 times the banks will
develop 30 times.
Earlier in India, the debt market was only 0.3 percent, but now it
has increased to 20 percent. The corporate debt market is vital for
long-term sustainability of the capital market.
When the debt market develops the profitability and funds of the
banks will increase. In addition the banks should not fear the rating
agencies. The corporate debt market is not a threat but a benefit to the
He said that developing the debt market will help the country become
a financial hub in two years. Perera was confident that it was an
achievable target but the fundamentals have to be in place.
Perera said that the IMF and the Central Bank are keen to develop the
debt market. A consultative committee must be setup to get the opinions
of industry, players before implementing any regulations which can be
harmful to its development.
At present there is a private debt securities market that cannot be
tracked. A simple system to register these institutions and make rating
mandatory. The Central Bank too should get involved as the papers go
through the banking sector.