Bangladesh’s economy and banking sector are currently grappling with a complex crisis, driven predominantly by the surge in non-performing loans (NPLs). As of September 2025, approximately 35 per cent of the country’s total outstanding loans were classified as non-performing, exerting significant pressure on the financial system. Regulatory weaknesses, procedural inefficiencies, and instances of corruption in loan approval and disbursement have further exacerbated the situation.
The underlying challenge stems largely from Bangladesh’s reliance on a bank-centric financing model. Globally, long-term capital is increasingly sourced from diversified financial instruments such as government and corporate bonds, as well as equity markets. In advanced economies including the United States, Japan, and the European Union, bond markets serve as critical indicators of economic stability. Over the past two decades, emerging economies such as India, Malaysia, and Indonesia have successfully developed robust domestic bond markets, which have underpinned infrastructure development and industrial expansion.
By contrast, Bangladesh’s bond market remains relatively nascent. By the end of September 2025, the total size of the country’s bond market stood at roughly USD 30 billion—significantly smaller than comparable regional economies. The principal constraints limiting market growth are summarised below:
| Constraint | Explanation | Impact |
|---|---|---|
| Complex and costly procedures | Approval, credit rating, trustee assignment, and listing processes are time-consuming and expensive | Discourages new issuers from entering the market |
| Lack of investor confidence | Historical cases of default and delayed repayments | Creates negative market sentiment and reduces trust |
| Limited institutional investors | Pension funds, insurance, and mutual fund infrastructure remain underdeveloped | Reduces long-term investment capacity |
| High returns on government savings certificates | Investors prefer guaranteed high-yield alternatives | Limits appetite for bond investments |
Experts argue that Bangladesh must transition from a bank-dependent system to a diversified financing structure. Streamlining bond issuance procedures, implementing stricter regulatory oversight, and reforming the pension and insurance sectors are critical steps. Additionally, aligning the interest rates on savings certificates with market realities could incentivise greater investment in bonds.
There is also significant potential in innovative instruments such as sukuk, green bonds, and social bonds, which are gaining global popularity. By establishing a green bond market aligned with international sustainability agendas, Bangladesh could attract both domestic and foreign investors, simultaneously supporting climate and development objectives.
If the incoming government and the central bank take decisive action, Bangladesh could cultivate a strong bond market, relieve pressure on the banking sector, and unlock new avenues for stable, long-term investment.