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Under The Bonnet of Bangladesh

Oliver Bell, Portfolio Manager, Frontier Markets Equity Strategy

While the Bangladeshi equity market has performed strongly in recent months, it has been a tricky period for the country’s banking sector. Iona Dent, our Frontier Markets Financials Analyst, spent a few days in the Bangladeshi capital of Dhaka to investigate the issues.

Executive Summary

  • The broad economic backdrop in Bangladesh is currently supportive, with GDP growth of 7% making it one of the fastest growing major economies in South Asia1.
  • While several factors will continue to weigh on the banking sector this year, we believe high-quality institutions have the strength to weather a tougher period.
  • Consumer stocks and other quality market leading operators in the country are continuing to deliver strong growth.
  • The political situation must continue to be closely monitored, as free and fair elections have been elusive in Bangladesh.


One of the fastest growing economies in the Frontier universe, Bangladesh posted GDP growth of 7% for the second year running in 20172. This growth has been driven by significant investment in both infrastructure and the private sector.

While heavily delayed, the Padma bridge – which stretches for more than 6km – is a key part of this investment programme. Incredibly, it will be the first fixed river crossing for road traffic, linking the south-west of the country to northern and eastern regions.

Opening Quote The political situation must continue to be closely monitored, as free and fair elections have not progressed as well in Bangladesh compared to other Frontier countries. Closing Quote

There are undoubtedly issues facing the Bangladeshi banking sector, which has witnessed a tightening in the regulatory loan-to-deposit ratio. At the same time, the government has been issuing high-yielding National Savings Certificates, which has crowded out bank deposits. These developments have led to liquidity concerns for the sector and resulted in a negative impact on margins. 

We used this trip to take a deep dive into our holdings Brac Bank and Eastern Bank, to ensure both institutions are adequately prepared for a more difficult period. Although the outlook for 2018 appears tougher, we retain our conviction in the capital strength of both banks and expect our positive long-term outlook to prevail.

Meanwhile, our other Bangladeshi holdings have performed well. We had a meeting with the new CEO of Grameenphone, a leader in the telecoms sector, which continued to grow strongly and posted rising margins. In addition, our other consumer holdings have delivered solid results.

However, the political situation must continue to be closely monitored, as free and fair elections have not progressed as well in Bangladesh compared to other Frontier countries. 

It is likely the elections at the end of 2018 will again be dominated by the Awami League, as the opposition Bangladesh Nationalist Party has been severely impacted by the five-year prison sentence handed down to leader and former prime minister Khaleda Zia in February. We will continue to keep close watch closely for any impact on economic policy or additional currency pressures.

As is typically the case for Frontier economies, the path of progression rarely moves in a straight line. This trip to Bangladesh was a reminder of this. However, experienced investors able to unearth the winners can still share in this prosperous journey. 

Key Risks - The following risks are materially relevant to the strategy highlighted in this material:

Transactions in securities denominated in foreign currencies are subject to fluctuations in exchange rates which may affect the value of an investment. Returns can be more volatile than other, more developed, markets due to changes in market, political and economic conditions. Investments are less liquid than those which trade on more established markets.

1International Monetary Fund [accessed 20 February 2018]

2International Monetary Fund [accessed 20 February 2018]


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