Bank loans max Tk1,000cr, issue bonds for more funds: Task force to firms

A joint task force of the Bangladesh Bank and the Bangladesh Securities and Exchange Commission (BSEC) has recommended capping bank financing at Tk1,000 crore per borrower, and those requiring funding beyond this limit should turn to the capital market by issuing bonds.

The proposed ceiling would reduce the economy's heavy reliance on bank loans and foster a vibrant bond market. Bangladesh's financial system remains largely bank-dependent, unlike global economies, central bank officials said in a seminar at the DSE Tower today (22September). 

The BSEC and the Dhaka Stock Exchange (DSE) jointly organised the seminar titled "Unlocking Bangladesh's Bond and Sukuk Markets: Fiscal Space, Infrastructure Delivery and Islamic Money Market Development."

Istequemal Hussain, a director of the central bank, said the task force had prepared a report with several recommendations for developing the bond market. One such recommendation is allowing a borrower to secure up to Tk1,000 crore through the banking channel, and they must issue bonds to raise additional funds.

"Private sector participation in bonds is very poor. To meet financial needs, we must raise funds from the capital market."

Salehuddin Ahmed, Finance Adviser 

Bangladesh Bank Governor Ahsan H Mansur, speaking as a special guest, said that the joint task force has submitted specific recommendations to the government. "Banks can provide loans for five to six years, but not beyond that period. Long-term assets should be financed through bonds," he said.

Mansur highlighted the structural imbalance, "Globally, bonds worth around $130 trillion have been issued, which is 130% of world GDP. Stock markets represent about $90 trillion, while the money market, including bank loans, accounts for only $60 trillion. In Bangladesh, it is the opposite — our economy is almost fully dependent on banks."

The governor said corporate institutions in Bangladesh prefer bank loans over bonds, often due to perceived advantages such as political influence or loan rescheduling opportunities. "We need to move away from this bank-dependent corporate culture," he stressed.

Bond market remains dull despite demand

Delivering the keynote presentation, Kabir Hassan, professor at the University of New Orleans, said Bangladesh's banking sector has been pushed into a fragile state due to misappropriation, corruption, and poor governance. Citing specific examples, he alleged that conglomerates like Beximco and the S Alam Group had severely damaged the sector through aggressive borrowing and misuse of influence.

"Unlike loans, bonds provide a trustee mechanism, which offers better security of funds. That's why we invested [in Sukuk]," Mashrur Arefin, MD, City Bank

Turning to the capital market, Kabir Hassan said Bangladesh had failed to build a vibrant corporate bond market, mainly because businesses prefer easy access to bank loans. Financial literacy remains low, and the absence of expertise has prevented the country from tapping into opportunities such as sukuk and other bond instruments.

Despite an infrastructure financing need estimated at $608 billion across sectors like power, telecom, water, ports, and transport, Bangladesh's bond market remains stunted by lengthy issuance processes, regulatory complexities, and high costs, he said.

Entrepreneurs continue to rely on banks for long-term financing, creating a dangerous asset-liability mismatch, as most deposits mature in less than a year. This overdependence on banks, combined with weak disclosure standards, has contributed to the growing volume of non-performing loans, he continued.

Kabir Hassan called on the Bangladesh Bank and BSEC to implement reforms, including stricter oversight, updated loan policies, and regulations to encourage bond financing over excessive bank borrowing.

Developing Sukuk and securitisation

Highlighting the underdeveloped Sukuk market, Bangladesh Bank Governor Ahsan H Mansur said only six Sukuk worth Tk24,000 crore have been issued so far. He suggested securitising income streams from public infrastructure projects like the Padma Bridge, metro rail, and flyovers to raise funds through bonds. "For this, a specialised unit in the Finance Ministry is necessary," he added.

Finance Adviser Salehuddin Ahmed, attending the seminar as the chief guest, emphasised that Bangladesh should shift its financing focus from bank loans and taxes to the capital market.

"Private sector participation in bonds is very poor. To meet financial needs, we must raise funds from the capital market," he said, adding that financial literacy and a long-term investment mindset are essential.

He said, nowhere in the world – be it the public sector or the private sector – is it legal to simply take a loan from a bank and then default on it to avoid liability. But in Bangladesh, this is a sad reality.

The adviser noted that a significant portion of sukuk funds has so far been channelled into areas such as sanitation and primary education, where financial returns are naturally limited. Initially, this approach was adopted to raise money quickly amid funding shortages.

However, he stressed that sukuk instruments are better suited for the private sector, where institutions can invest, generate income, and ultimately ease pressure on banks. While this model has yet to be fully implemented, he said efforts are underway.

Highlighting the potential of securitisation – turning fixed assets or income streams such as tolls, rents, loan repayments, or future revenues into tradable securities – the finance adviser argued that Bangladesh has overlooked significant opportunities.

"Projects like the Padma Bridge and Metrorail could be securitised to attract investment. Even existing assets, such as the Jamuna Bridge, could have drawn strong investor interest because of guaranteed income from toll collections. Unfortunately, the government did not pursue this path. Now, it is time to think seriously about it," he said.

Country at a critical stage of financial reform

Nazma Mobarek, secretary of the Financial Institutions Division, said Bangladesh is at a critical stage of financial reform. With a Muslim population of around 15 crore, she stressed the importance of issuing more Sukuk to meet Shariah-compliant investment demand.

City Bank Managing Director Mashrur Arefin shared that his bank invested Tk300 crore in Beximco's Sukuk for a solar and textile project. "Unlike loans, bonds provide a trustee mechanism, which offers better security of funds. That's why we invested," he explained.

"If we had provided loans to Beximco, it would have been very difficult to secure them. Instead, we invested in the bond with trust in the ICB, the bond's trustee. We received timely returns. This is the difference between a bond and a loan," he added.

Other speakers at the event raised concerns over high costs, regulatory delays, and the absence of secondary market indicators like bond indices. 

UCB Investment MD Tanzim Alamgir said, "We need lower operating costs, faster approvals, and credible credit ratings to build a vibrant bond market."

BSEC Chairman Khondoker Rashed Maqsood acknowledged the delays in bond approvals, citing the need for caution after criticism over earlier Sukuk approvals. "If required documents are in order, we will not delay approvals," he assured, adding that empowering trustees is a priority to build investor confidence.

DSE Director Minhaz Manna Emon called for consistency in documentation requirements to avoid unnecessary hurdles in bond issuance.