Capital Market’s Role in Industrial Financing Continues to Shrink as Bank Dependence Rises
DHAKA:
The growing dependence on bank financing is placing greater pressure on the banking sector and raising questions about the balance and resilience of the country’s overall financial system.
Economists and market stakeholders say excessive reliance on banks for long-term financing can increase risks within the banking sector while limiting the development of a more diversified financial system.
Wide Financing Gap in Industrial Investment
The weakness of the capital market is particularly evident in the country’s failure to attract new companies through initial public offerings (IPOs).
According to Bangladesh Bank’s annual report for the 2024-25 fiscal year, no company raised funds through an IPO during the year. The most recent IPO approval had been granted to Techno Drugs in March 2024, highlighting the prolonged drought in new listings.
Data from Bangladesh Bank and the Bangladesh Securities and Exchange Commission (BSEC), cited by market stakeholders, show a significant disparity between bank financing and capital-market financing for industry.
In fiscal 2024-25, bank financing to the industrial sector stood at approximately Tk 97,138 crore, while financing raised through the capital market amounted to only a few hundred crore taka.
The gap was similarly pronounced in previous years. In fiscal 2023-24, bank financing to industry stood at around Tk 88,738 crore, compared with only Tk 679 crore raised through the capital market.
In fiscal 2022-23, industrial financing through bank credit amounted to approximately Tk 95,172 crore, while the capital market contributed around Tk 641 crore.
In fiscal 2021-22, banks provided roughly Tk 72,360 crore in industrial financing, compared with approximately Tk 685 crore raised through the capital market.
The figures underline the limited role of the capital market in providing long-term capital for industrial expansion compared with the banking system.
The broader capital-raising picture also reflects the market’s weakness. Bangladesh Bank’s 2024-25 report shows that no funds were raised through IPOs during the fiscal year. A rights issue raised Tk 302.82 crore, while a private offer generated Tk 166 crore.
Combined equity issuance therefore amounted to just Tk 468.82 crore, down sharply from approximately Tk 9,054 crore in fiscal 2023-24.
Why Banks Remain More Attractive to Entrepreneurs
Market participants say entrepreneurs often prefer bank financing because the process is generally perceived as more straightforward and faster than raising capital through the stock market.
Riyad Mahmud, president of the Bangladesh Association of Publicly Listed Companies (BAPLC) and managing director of National Polymer Industries PLC, said delays in the listing process discourage companies from seeking financing through the capital market.
According to him, completing an IPO and bringing a company to the stock market can take a considerable amount of time. Bank financing, by contrast, can provide entrepreneurs with comparatively quicker access to funding and decision-making.
As a result, businesses seeking to establish new industrial facilities or expand existing operations often find bank loans more convenient than going through the IPO process.
At the same time, Mahmud views recent reform initiatives by the BSEC as a potential opportunity for positive change in the market.
Moves to Reform the IPO Process
The BSEC has recently undertaken measures to reduce barriers to bringing new companies to the stock market.
In 2025, the regulator introduced new Public Offer of Equity Securities Rules, while also working to make the IPO process more transparent, accountable and time-bound.
In July 2026, the BSEC held discussions with various market stakeholders and announced further initiatives to reform the IPO framework.
The proposed changes are aimed at improving transparency, strengthening investor protection, enhancing the reliability of financial reporting and making the IPO process more efficient.
The government has also proposed measures in the 2026-27 national budget to make the IPO process more technology-driven and time-bound.
Under the proposed framework, several stages—including applications, document submission, verification, fee payments and approvals—would increasingly be handled online.
Direct Listing Route Being Revived
Reforms are not limited to IPOs. The regulator has also moved to revive the long-discussed direct listing mechanism.
In September 2026, the BSEC approved a draft of the Direct Listing of Securities by Stock Exchange Rules, 2026.
Under the proposed framework, eligible companies could potentially list their securities on a stock exchange without going through the conventional IPO process.
The BSEC has said the mechanism is intended, among other things, to provide established companies that do not require fresh capital with an avenue for bringing existing shareholders’ shares to the market.
The initiative is also aimed at expanding the participation of new and financially sound companies and making the capital market deeper and more diversified.
Proposal for Joint Bank and Capital-Market Financing
Sumit Poddar, secretary-general of the Bangladesh Merchant Bankers Association (BMBA) and chief executive officer of MTB Capital, argues that simply giving policy priority to the capital market will not be enough unless that priority is reflected in the structure of industrial financing.
He has proposed that financing for large industrial projects and new ventures could, beyond a certain threshold, be structured to involve both banks and the capital market.
As an example, he has suggested a financing structure in which 60% of funding could come from banks and 40% from the capital market.
This is currently a proposal from a market professional rather than a mandatory government policy.
Poddar argues that if large, long-term projects depend entirely on bank financing, pressure on banks in terms of credit exposure and liquidity could increase. Involving the capital market, he says, could diversify both financing sources and financial risks.
Bond Market and Alternative Financing Remain Underdeveloped
Another major weakness of Bangladesh’s capital market is its heavy dependence on equity financing.
In many developed and emerging economies, long-term industrial and infrastructure projects are financed not only through shares but also through corporate bonds, sukuk, green bonds and other debt instruments.
In Bangladesh, however, these alternative financing mechanisms remain relatively small in scale. Consequently, large investment projects continue to rely heavily on bank loans.
Market experts say a deeper and more effective capital market requires more than an equity market. It also needs a stronger bond market, a broader mutual-fund industry, greater participation by institutional investors and more opportunities for long-term investment.
Shortage of Quality Companies and Investment-Grade Stocks
Market stakeholders are also concerned about the limited supply of high-quality companies entering the stock market.
Questions have emerged in recent years over the financial strength and business fundamentals of some newly listed companies. Some companies have subsequently faced financial difficulties or struggled to maintain performance, affecting investor confidence.
Market analysts say such experiences can discourage investors from committing capital for the long term.
At the same time, stakeholders have repeatedly called for effective incentives to encourage large domestic companies and multinational corporations to list on the stock exchanges.
An increase in fundamentally strong companies could expand investment opportunities while also improving the depth and diversity of the market.
BSEC’s Broader Reform Agenda
Mohammad Abul Kalam, executive director of the BSEC, has said the commission is working on a range of reforms aimed at addressing structural weaknesses in the capital market.
In addition to reforming the IPO process, the regulator is working on measures related to direct listing, strengthening the bond market and increasing the flow of corporate bonds, according to him.
The commission’s recent activities reflect these priorities, including the implementation of new Public Offer Rules and progress toward a new framework for direct listings.
A Structural Shift in Industrial Financing
As Bangladesh’s economy expands, demand for long-term capital is also increasing. Large-scale investment is needed in manufacturing, infrastructure, power, technology, production and export-oriented industries.
But if much of the financing burden continues to fall on banks, financial risks may become increasingly concentrated within a single segment of the financial system.
Strengthening the capital market, however, will require more than simply increasing the number of IPOs.
It will require the listing of financially sound companies, stronger corporate governance, reliable financial reporting, greater institutional investment, development of the bond market and measures to rebuild investor confidence.
Recent regulatory initiatives have begun laying the groundwork for such changes. Their impact, however, will ultimately depend on how effectively the reforms are implemented and whether they succeed in attracting quality companies and long-term investors back to the market.
For Bangladesh’s industrialisation process, the emerging policy challenge is therefore not to position banks and the capital market as competing sources of finance, but to develop them as complementary pillars of a diversified financial system.
A stronger balance between bank-based lending and market-based financing could provide industries with more diversified access to long-term capital while reducing excessive dependence on any single channel of finance.
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