Strict action against bond coupon payment failure could restore investor trust: Governor

Lack of investor confidence remains the biggest obstacle to developing Bangladesh's corporate bond market, and restoring trust requires strict regulatory action against issuers who fail to honour coupon payments, Bangladesh Bank Governor Ahsan H Mansur said yesterday.

Without restoring investor trust, any attempt to deepen the bond market would be futile, he said at a seminar titled "Bond Market Development in Bangladesh: Challenges and Recommendations", jointly organised by Bangladesh Bank and Bangladesh Securities and Exchange Commission (BSEC) in Dhaka.

The governor pointed out that weak enforcement of existing rules has badly damaged confidence, particularly in cases where issuers have failed to pay bond coupons without facing consequences. 

In developed markets, he said, even a single missed coupon payment is treated as a serious default that triggers regulatory action and reputational damage. "But in our country, there is hardly any consequence if a company fails to pay bond coupons. No one seems to care." 

He added, "Such regulatory laxity discourages investors from participating in the market. Restoring trust would require not only stricter rules but also effective supervision and enforcement to protect investors." 

He noted that three macroeconomic factors are critical for bond market development: stability, lower interest rates and controlled inflation. "Without progress on these fronts, the bond market cannot grow."

BSEC and DSE sources said several issuers, including Sea Pearl Beach Resort, Regent Textile and a number of banks, have failed to make timely coupon payments, yet punitive action has been limited. 

Questions have also been raised over compliance issues surrounding certain bond issuances, such as the Beximco Green Sukuk, further weakening investor confidence.

At the seminar, Mansur formally unveiled a concept note on bond market development prepared by a high-level committee formed following the chief adviser's directive. The concept note outlines the current challenges facing the bond market and proposes a phased reform roadmap extending to 2030.

Excessive reliance on bank loans

The governor said the central bank may consider discouraging excessive reliance on bank loans. If a company or business group seeks loans beyond the single borrower exposure limit, banks could suggest raising funds through bonds or equity instead, he added. 

However, he cautioned that such measures should be implemented carefully and only alongside reforms that make the bond market more accessible and attractive. He also highlighted several pull factors to attract issuers, including tax incentives, shorter issuance timelines and lower costs. 

Govt should introduce funded pension schemes

According to Mansur, the government and the business community must take the lead in developing the bond market, but the first step is to make it more protective and user-friendly so that both issuers and investors feel confident participating.

To broaden investor participation, Mnsur said the government should introduce funded pension schemes instead of non-funded ones, as pension funds can act as stable, long-term investors in bonds. 

He also suggested forming a central coordination committee, supported by several sub-committees, to improve cooperation among regulators and ensure effective implementation of reforms.

Another proposal put forward by Mansur was allowing national savings certificates to be traded in the secondary market. He argued that if savings certificates become tradable, the overall bond market size could double, while giving savers greater liquidity and flexibility.

Bank loans still favoured: BSEC chairman

BSEC Chairman Khondoker Rashed Maqsood said bank loans remain easier to obtain than capital market financing in Bangladesh, which explains why companies continue to rely heavily on banks.

He said non-performing loans have risen partly due to mismatches between loan tenures and funding sources. The concept note, he said, recommends encouraging both the government and corporates to tap the capital market more actively. 

After gathering feedback from stakeholders, BSEC plans to finalise new regulations to support bond market development, he added.

Govt working to attract foreign investors: Finance secretary

Finance Secretary Khairuzzaman Mozumder said that although the longstanding issue of double taxation on bonds has been resolved, new challenges have emerged in secondary trading due to frequent changes in ownership. 

He described these as largely software-related problems that cannot be addressed manually at every stage, stressing the need for coordination between the National Board of Revenue and BSEC. 

He also said the government is working to attract foreign investors to local currency bonds and has formed a committee to introduce secondary trading of savings certificates.

Private sector caution against restrictions

Uzma Chowdhury, corporate finance director of Pran-RFL Group, said that restricting bank loans could harm businesses if alternative financing channels are not sufficiently developed. 

She argued that many private sector firms are reluctant to go to the capital market because they are reluctant to share profits, disclosure requirements and restrictions, and that further constraints could discourage investment rather than promote bond issuance.

Mashrur Arefin, president of the Association of Bankers Bangladesh and managing director of City Bank, stressed the importance of allowing foreign investors to freely repatriate bond investments. 

He said bond market development would remain limited unless the policy rate is reduced and valuation mechanisms in the secondary market are simplified for retail investors. Imposing caps on private sector borrowing without a functional bond market, he warned, would only increase pressure on businesses.

80% debt financing from banks: Concept note 

According to the jointly prepared concept note, Bangladesh's financial system remains overwhelmingly bank-centric, with about 80% of debt financing coming from banks.

Around 70% of bank deposits mature within a year, creating maturity mismatches and liquidity risks. The corporate bond market remains underdeveloped due to the dominance of bank financing, high issuance costs, complex regulations, weak appetite for non-sovereign debt, poor enforcement and the crowding-out effect of high-yield government savings certificates.

As of June 2025, Bangladesh had only 16 listed corporate bonds, 14 of which were issued by banks mainly to meet regulatory capital requirements. The total corporate bond market size stood at Tk33.34 billion, accounting for just 0.06% of GDP, compared to 5.73% for government bonds. In contrast, peer countries such as Malaysia, South Korea and China have bond market-to-GDP ratios exceeding 100%.

The concept note recommends phased reforms, including streamlining issuance procedures, offering targeted tax incentives, expanding the investor base, strengthening legal frameworks and improving secondary market liquidity through coordinated regulatory action. These reforms are planned over the short term by December 2026, the mid-term by 2027 and the long term by 2030.