Leading bankers, economists, investment professionals, accountants and lawyers have stressed the need for urgent reforms to strengthen the capital market so that it can help recapitalise the country’s ailing banking sector.
The call came at a roundtable titled “Reviving Confidence in Bangladesh’s Banking Sector: Why Capital Matters the Most Now” held in the capital on Monday.
The discussion, organised by the think-tank Policy Exchange Bangladesh (PEB), also outlined the urgent capital challenges confronting the country’s financial system.
At the end of December last year, 19 banks faced a massive capital shortfall of Tk 1.72 lakh crore, while the sector’s non-performing loan ratio is projected to reach 30 percent, said M Masrur Reaz, chairman and CEO of PEB.
“A capital shortfall in banks can cascade into a full economic crisis — making restoration a national priority,” he said, asking, “Where will the huge capital come from?”
It may come from the government’s injection, private equity, right shares, subordinated bonds, hybrid instruments or through mergers and acquisitions, said PEB Senior Analyst Hasib Hasan in his keynote presentation.
The government, due to mandatory fiscal discipline, cannot do much. The rest are capital market options — and that market in Bangladesh is not yet prepared, Reaz said.
Hasib Hasan said the gigantic task would require restoring confidence alongside eliminating the long-prevailing weaknesses.
The finance ministry, central bank, securities regulator, revenue board and law ministry together can emerge as the enablers, he suggested.
“The banking crisis is a result of governance and structural failure, and the loopholes must be stopped through coordinated efforts,” said Mutual Trust Bank Managing Director and CEO Syed Mahbubur Rahman.
Other bankers criticised a range of unique policies that Bangladesh adopts to solve problems, but which often result in unfriendly regulations.
For instance, Prime Bank managing director and CEO Hassan O Rashid said regulators should cap board seats instead of limiting investments in a bank.
“Bangladesh needs no innovation in finance; it should simply follow global best practices, as financial rules are universal,” said City Bank chief financial officer Md Mahbubur Rahman.
Beyond the five Islamic banks being merged and acquired by the state, many other banks are under dual pressure to ensure both provisioning and capitalisation.
Bangladesh may adopt the global stringent accounting standards IFRS-9 a few years later, but it must stick to Bangladesh Bank’s outlined standards and transparent reporting for the sake of much-needed confidence, opined Hoda Vasi Chowdhury & Co senior partner A F Nesaruddin.
Al-Arafah Bank executive committee chairman Md Abdul Wadud called for prudent regulations to allow moderately weak banks to turn around, noting that he expects foreign capital to enter the sector in the coming days.
Dhaka Stock Exchange Brokers’ Association president Saiful Islam, highlighting the weak capital market ecosystem, suggested incentives to boost listings, bond issuance and domestic investor participation alongside attracting foreign investors.
Economist Wajid Hasan Shah, executive president of the Bangladesh Institute of Capital Market, stressed prioritising positive investor experiences to restore confidence.
Syed Ishtiaq Ahmed & Associates managing partner Barrister Syed Afzal Hasan Uddin said investor confidence is seriously weakened by lengthy and unpredictable legal processes in Bangladesh. He called for functional commercial courts, disciplined case management and full implementation of the Bankruptcy Act and civil procedure reforms.
