Written by The Banking Post
Bangladesh must urgently develop a strong capital and bond market alongside a long-term financing policy to relieve mounting pressure on the country’s troubled banking sector, economists and bankers have said at a recent roundtable.
The discussion, titled “Reviving Confidence in Bangladesh’s Banking Sector: Why Capital Matters the Most Now,” was organised by Policy Exchange Bangladesh (PEB) in Dhaka. Speakers stressed that the absence of long-term funding instruments has forced commercial banks to finance business needs with short-term deposits — a practice that contradicts global financial norms and contributes to rising non-performing loans (NPLs).
They warned that the increasing volume of NPLs is eroding banks’ capital and profitability, threatening the overall stability of the financial system.
Moderating the event, Dr. M Masrur Reaz, Chairman and CEO of PEB, said the interim government faces three key challenges — restoring governance, ensuring democratic transition, and stabilising the economy for renewed growth.
“Recapitalisation is essential to stabilise the banking sector,” he said. “The real question is how to meet the huge funding requirement — and global best practice shows that market-based recapitalisation through the capital market is the answer.”
Mutual Trust Bank’s Managing Director and CEO, Syed Mahbubur Rahman, highlighted that the pressure on banks to provide long-term financing persists due to the lack of a vibrant capital and bond market. “The Capital to Risk-Weighted Asset Ratio (CRAR) has dropped to 3% from over 11%, far below international standards,” he noted, adding that “the erosion of capital is not a technical glitch but a structural and governance failure.”
He also cited political interference, weak regulation, audit lapses, and substandard credit rating practices as major factors undermining banking stability.
Prime Bank CEO Hassan O. Rashid urged forward-looking reforms instead of dwelling on past mistakes. “The capital market can play a crucial role in addressing structural issues hurting the banks,” he said, calling for coordinated efforts from Bangladesh Bank, BSEC, and NBR to restore investor confidence.
Dhaka Stock Exchange Brokers Association President Saiful Islam echoed similar concerns, saying that recapitalisation cannot rely solely on sponsors’ equity investment. “A vibrant bond market is essential to meet the funding needs. All regulators must work together to make it happen,” he said.
Legal expert Barrister Syed Afzal Hassan Uddin added that establishing dedicated commercial courts could help resolve financial disputes more efficiently, thereby supporting market confidence and investor protection.
