Despite repeated policy statements and successive reform initiatives, Bangladesh’s corporate bond market has yet to develop into a meaningful channel for long-term corporate financing. Credit intermediation remains firmly dominated by the banking sector, while the capital market continues to be overwhelmingly equity-centric, leaving debt instruments to play little more than a symbolic role. This persistent imbalance has increased systemic risk, constrained long-term investment, and limited the degree of market discipline applied to corporate financial behaviour.
The failure of the corporate bond market cannot be explained solely by market size, interest rates, or investor appetite. At its core, it reflects a deeper deficit of trust, weaknesses in institutional architecture, and the absence of a credible financial truth infrastructure.
In structural terms, Bangladesh’s corporate bond market remains negligible relative to gross domestic product and markedly underdeveloped compared with regional peers. The majority of listed bonds are issued by banks, often in response to regulatory capital or liquidity requirements, rather than by non-financial corporates seeking market-based sources of funding.
Secondary market activity is correspondingly thin. Price discovery is weak, liquidity is limited, and most bonds are effectively held to maturity. This reflects a long-standing structural bias towards bank-based financing, which has shaped corporate behaviour, regulatory incentives, and investor expectations over time.
Investor reluctance is driven by multiple reinforcing weaknesses. These include illiquid secondary markets, the absence of a reliable yield curve, inconsistent enforcement of investor protection rules, and a lack of credible default resolution mechanisms. High-yield government instruments further crowd out private credit by offering risk-free alternatives with attractive returns.
More fundamentally, investors remain unconvinced about issuer transparency, the quality of financial reporting, and the enforceability of bondholder rights.
Corporates, for their part, continue to favour bank loans because they provide flexibility, confidentiality, and relationship-based problem resolution. Banks allow renegotiation, restructuring, and regulatory forbearance during periods of stress. Bond financing, by contrast, requires public disclosure, fixed covenants, and adherence to market discipline.
In an environment where disclosure increases risk without commensurate benefits, it is unsurprising that rational corporates avoid bond issuance.
The central constraint is the quality of financial statements. Corporate bonds are credit instruments that depend on reliable assessment of solvency, liquidity, and cash flows. In Bangladesh, many corporate financial statements may be formally compliant with accounting standards, yet lack substantive reliability.
Common weaknesses include aggressive revenue recognition, inadequate provisioning, inflated asset valuations, opaque related-party transactions, and persistent divergence between reported profits and operating cash flows. Such deficiencies undermine credit analysis and distort pricing.
Audit quality remains a systemic concern. Excessive management influence, fee dependence, limited rotation, and weak post-audit accountability have eroded confidence in audit opinions. As a result, audits often reduce procedural risk without meaningfully addressing underlying credit risk.
For bond investors, this undermines the entire information chain.
Banks nevertheless continue lending despite weak financials because they rely on collateral, guarantees, relationship capital, and regulatory flexibility. They can restructure loans, roll over exposures, and absorb losses within balance sheets. Bond investors lack these tools and must instead rely on disclosed information and legal enforcement.
This asymmetry helps explain why banks continue lending while markets withdraw.
Weak financial reporting also distorts credit ratings, inflates perceived credit quality, and destroys pricing discipline. Institutional investors, pension funds, and insurance companies therefore avoid corporate bonds, reinforcing buy-and-hold behaviour and preventing the emergence of secondary liquidity.
Reviving the corporate bond market requires redefining “true and fair” reporting through substance-based enforcement. Bond issuers must meet higher disclosure standards, including quarterly cash-flow reporting, covenant compliance certificates, and use-of-proceeds tracking.
Audit reform, rating agency accountability, and coordinated regulatory oversight are non-negotiable pillars of this agenda.
Bangladesh does not lack savings, corporates, or regulatory frameworks. What it lacks is a credible financial truth infrastructure. Until financial statements are trusted, audits are professionally feared, and misreporting carries real consequences, the corporate bond market will remain shallow, symbolic, and bank-dependent.
The author is a capital market expert and former chief regulatory officer of the DSE.
