DOS Circular Letter No. 27: Mark-to-Market based Revaluation of Treasury Bills and Bonds held by the Banks

Bangladesh Bank (Central Bank of Bangladesh)Head OfficeMotijheel, Dhaka 1000Bangladeshwww.bb.org.bdDepartment of Off-site SupervisionDOS Circular Letter No. 27 Date:19 Agrahayan 14304 December 2023Managing Director/Chief ExecutiveAll Scheduled Banks operating in Bangladesh.Regarding Mark-to-Market based Revaluation of Treasury Bills and Bonds held by Bank Companies.Attention is drawn to DOS Circular Letter No. 05 dated May 26, 2008, DOS Circular Letter No. 05 dated January 28, 2009, and DOS Circular Letter No. 42 dated October 7, 2021, on the above subject. Primary Dealer (PD) banks are playing an important role in establishing an effective secondary market for government securities. At this stage, with the aim of further encouraging post-issue buying and selling of government securities and developing a more active secondary market, it has been decided to refine some instructions of the aforementioned circular letters regarding trading securities held by banks and their Mark-to-Market based revaluation:

Instructions for Primary Dealer (PD) Banks:

1. In all cases, PD banks must hold sufficient securities to complete secondary trading according to the Turnover Volume determined by Bangladesh Bank from time to time, and sufficient Benchmark Securities to submit Two Way Price Quote. Policies issued by Bangladesh Bank for the development of primary and secondary markets for securities must be followed.
2. The quarterly average of trading securities held in the Held-for-Trading (HFT) portion of any PD bank must be at least 20% (twenty percent) of the bank's total securities held. However, if the total amount of securities held by a bank is equal to or less than the required SLR, this minimum limit will not be applicable for that period.
3. Currently, if the amount of securities held in the HFT portion of any PD bank exceeds 20% of the bank's total securities held, the surplus portion can be transferred to the Held-to-Maturity (HTM) category. However, this transfer operation can only be done once by December 31, 2023, and a statement regarding this must be submitted to this department as per the attached form.
4. Method of reclassification from Trading Portfolio to HTM category for the purpose of fulfilling serial no. 3: In such reclassification, if a security was acquired before June 30, 2023, the Book Value of the security as of June 30, 2023, will be considered as the new Gross Carrying Amount. Otherwise, the Purchase Price (Clean) of the security will be considered as the new Gross Carrying Amount. The Effective Interest Rate must be determined based on the time of reclassification for the purpose of interest income and amortization, and the day of reclassification will be considered as the Date of Initial Recognition.
5. Any Gain or Loss arising from the difference between the new Book Value and the Book Value immediately prior to reclassification will be accounted for in the profit and loss statement of the relevant period.
6. Currently, if the amount of securities held in the HFT portion of any PD bank is less than 20% of the bank's total securities held, it must be fulfilled within the 1st Quarter of 2024.
7. If any PD bank fails to hold at least 20% of its total securities in the trading portfolio at the end of any Quarter, a penalty will be imposed at Bank Rate + 2% on the difference between 20% of the sum of total daily securities held and the sum of daily trading securities held for that Quarter.
8. March 31, June 30, September 30, and December 31 of any year will be counted as the last day of the Quarter, and a statement (DW-5pts) regarding held trading securities must be submitted to this department within 10 days of the Quarter-end.
9. For calculating total securities held, all types of approved (considered as SLR) securities will be included. In this case, all encumbered securities will also be included; only securities sold under repurchase agreements will not be included. For calculating total trading securities held, all Treasury Bills, Treasury Bonds, and BB Bills identified as HFT will be included. In this case too, all encumbered securities will also be included; only securities sold under repurchase agreements will not be included.
10. Re-measured securities held by PD banks must be transferred to the HTM category. Consequently, the Re-measured category or account will automatically cease to exist.

Instructions for Non-Primary Dealer (PD) Banks: 11. Non-Primary Dealer banks can hold approved securities up to a maximum of 120% of the required SLR in their HTM portfolio. However, this limit must be reduced to 110% by December 31, 2024.

Instructions for All Banks: 12. Weekly revaluation loss of any HFT category Treasury Bond can be adjusted (Net-off) against the Revaluation Reserve (if any) of that bond. However, if there is no Revaluation Reserve against that bond, it will be accounted for in the profit and loss statement of the relevant period. Under no circumstances can the loss of one bond be adjusted against the reserve of another bond. The existing method will be followed for Treasury Bills. 13. Amortization of securities held in the HTM portion must be mandatorily completed at year-end; additionally, amortization can be done at other times of the year for the purpose of preparing financial reports or statements. However, the amortized value completed at year-end will be considered as SLR for the subsequent year, and only information related to year-end amortization must be submitted to this department as per the instructions of DOS Circular Letter No. 05/2008. Any decrease/increase due to amortization can be accounted for in the profit and loss statement of the relevant period.

These instructions will be effective immediately. At the same time, DOS Circular Letter No. 42 dated October 7, 2021, will be considered cancelled hereby. Furthermore, other instructions of DOS Circular Letter No. 05/2008 and DOS Circular Letter No. 05/2009 will remain unchanged.

Yours faithfully, (Arif Hossain Khan) Director (DOS) Phone: 9530093

Annexure-I Information Regarding Re-classification of Securities from HFT to HTM (To be submitted within 10 days of Re-classification) Date of Re-classification: (Fig. in Tk.)

SL No.	ISIN	Date of Issue	Date of Purchase	Date of Maturity	Face Value	Book Value on 30 June 2023/ Purchase Price (Clean)	Book Value just before Reclassification	Profit/Loss to be Booked	New YTM
Total holdings:
Total holdings in HFT:
Total holdings in HFT against Total holdings (%):
Total re-classified amount:
Authorized officer
ID No: ID No:
Name: Name:
Designation: Designation:
Phone: Phone:
Mobile No: Mobile No:

Information Regarding Holdings of HFT Securities DW-5 (PTS) (To be submitted within 10 days at the end of each Quarter )

Date	Required SLR	Total Holdings of Securities	20% of Total Holdings	Holding of HFT Securities	Excess/Shortfall of HFT Securities	Total	Average holding of HFT securities (%)
Authorized officer
ID No: ID No:
Name: Name:
Designation: Designation:
Phone: Phone:
Mobile No: Mobile No:

Statement (DW-5a) Regarding Amortization Information of HTM Securities as on 31st December (To be submitted within 15th of the following January) Name of the Bank: (Fig. in Tk.)

Sl. No. of T. Bill/T.Bond	Date of Issue	Date of Maturity	Face value	Offer value	Primary Yield (YTM)	Coupon	Amortized value (Previous)	Amortized value (Present)	Gain/Loss to be booked in P/L
a	b	c	d	e	f	g	h	i=h-g
Total
Authorized officer
ID No: ID No:
Name: Name:
Designation: Designation:
Phone: Phone:
Mobile No: Mobile No: