Revitalising Bangladesh’s corporate bond market
Bangladesh’s economy can no longer sustainably rely almost entirely on bank financing. As industrial and infrastructure demands expand, the need for long-term capital is increasingly urgent. Yet, an overreliance on bank financing persists, exacerbating systemic risks, liquidity crises, and a mounting crisis of non-performing loans (NPLs).
According to Bangladesh Bank data from December 2025, the banking sector’s NPL ratio hit approximately 30.6 percent, among the highest globally. This is a dire warning for macroeconomic stability. To overcome these deep structural vulnerabilities and supply private sector capital, reforming the underdeveloped corporate bond market is the only viable alternative.
Regional comparisons highlight this underdevelopment. As of March 2025, Bangladesh’s bond market-to-GDP ratio was merely 6.6 percent, contrasting sharply with Vietnam (27 percent), Indonesia (31 percent), and Nepal (43 percent). More alarmingly, the corporate bond segment accounts for just 0.06 percent of GDP. The overwhelming majority of this asset class consists of subordinated debt issued by commercial banks strictly to meet regulatory capital requirements.
Lacking an effective secondary market, these trade almost exclusively over-the-counter (OTC), leaving capital raising by non-bank corporates virtually non-existent. Deep structural inefficiencies on both the supply and demand sides drive this stagnation. From the issuer’s (supply) perspective, the primary barriers are the exorbitant costs and excessive delays in the issuance process.
Securing legal and regulatory approval to issue a bond takes 18 to 24 months, whereas a syndicated bank loan can be secured in just 3 to 4 months. Because of this severe delay, the proposed coupon rate loses its alignment with prevailing interest rates and government treasury yields by the time the bond is finally issued.
On the investor’s (demand) side, there is a shortage of institutional investors. A structured pension fund ecosystem has not yet developed, and the asset management sector remains small. Information asymmetry is rampant due to a lack of transparency in corporate financial reporting, weak corporate governance, and questionable credit rating standards. Furthermore, precedents of delayed principal and coupon payments have created a crisis of confidence among investors.
The experiences of neighbouring countries offer crucial lessons. India successfully reduced its bond issuance approval timeline from 12–18 months to 3–6 months and introduced an effective benchmark yield curve. By integrating pension funds and insurance companies into the market, India generated massive institutional demand for corporate bonds.
Pakistan, through strict regulatory intervention and the enforcement of penalties against defaulters, successfully restored investor confidence. Both countries reduced corporate dependence on banks by establishing bonds as a credible financing alternative.
To transform Bangladesh’s corporate bond market into a mainstream source of financing, regulatory bodies must immediately implement several structural decisions:
First, to reduce excessive bank reliance and deepen the capital market, a maximum borrowing threshold of Tk 500 crore should be imposed on single clients. Forcing them to raise any additional capital from the bond or capital markets will automatically increase the supply of corporate bonds.
Second, to eliminate price discovery uncertainties, it is imperative to establish a reliable, market-driven benchmark yield curve utilising government bonds of varying maturities. Additionally, the trading of government bonds must be fully integrated with the stock exchanges, rather than remaining restricted to the Bangladesh Bank’s Market Infrastructure (MI) module.
Third, to boost secondary market liquidity, a legal framework must be established allowing the Investment Corporation of Bangladesh (ICB) and institutional investors to act as market makers. To mitigate investor risk, it is urgent to form a Bond Guarantee Fund to ensure partial protection (credit enhancement) in the event of an issuer default.
Fourth, introducing financial instruments like green bonds or sukuk to ensure long-term energy security is the need of the hour. Currently, India and Pakistan generate 20 percent and 31 percent of their total electricity from renewable sources, respectively. In Bangladesh, this rate is a mere 2 percent. To meet the massive investment needs of this sector, green financing through the bond market must be incentivised beyond traditional bank financing.
A modern and sustainable economy can never run solely on bank financing. If the proposed policy reforms are implemented, Bangladesh’s bond market has the potential to grow from 6.6 percent to 20 percent of GDP over the next decade. Only then will systemic risk in the banking sector decrease, creating a transparent and competitive long-term financing environment for industrialisation. It is imperative that regulatory bodies, namely Bangladesh Bank and the BSEC, take immediate action.
The writer is the managing director and CEO of Vanguard Asset Management Ltd.
