Bangladesh has two banking systems, and only one of them can raise capital

When Moody's reaffirmed Eastern Bank's B2 rating in November, it took care to note that the rating was capped by the sovereign. The bank's own fundamentals were called out as solid — capital base, profitability, asset quality, and liquidity. 

None of that mattered to the ceiling. EBL had finished September 2025 with non-performing loans at 2.78%. The system's average that month was just over thirty-five. The stronger bank's access to international debt was being priced as if it sat in the same place as the rest of the system. It isn't.

The Bangladesh Bank disclosure last quarter that seventeen private banks held NPLs below 10% was widely read as a piece of good news. It is also a list of seventeen institutions with no available channel through which to raise scaled equity capital. The Dhaka Stock Exchange has approved no IPO since March 2024. 

Domestic rights issues are theoretically permitted but practically inert. International issuance prices off the sovereign rating, which Moody's lowered to B2 with negative outlook in November 2024, three to four notches below investment grade. A Eurobond at that level would land in frontier-market territory, and a foreign-currency hybrid is no different.

The headline figures conceal as much as they reveal. The World Bank's April Bangladesh Development Update put the December 2025 NPL ratio at 30.6%, better than September's peak but still the highest in the world, a system aggregate that conceals a private-bank tail running an order of magnitude lower. The Bangladesh Bank's own Q2 FY25 quarterly put system CRAR at 3.08% against a 12.5% Basel III requirement. 

Inside the private-bank universe sit fifteen or so institutions running CRAR around 12% and NPLs in single digits, with the capital ratios and asset quality to grow into the gap that the contracting state and merged Islamic-bank balance sheets have started to leave.

The Bangladesh Securities and Exchange Commission could publish a tiered framework for bank capital raises that runs alongside the resolution work, the Asset Quality Reviews, and the Sammilito Islami restructuring rather than competing with them. Four design choices would make it useful.

Two tracks, not one

Their problem is that they have nowhere to raise the equity that growth would require. Private-sector credit growth in February was negative six% year-on-year, as Fahmida Khatun has noted, the first negative print in over a decade. Some of the contraction reflects banks rotating into government bonds, where capital weights are zero and credit risk is absent. 

Either way, the well-performing private banks are constrained from extending new lending at scale because their capital cannot expand. Without a route to fresh capital for that group, the credit drought widens through the BNP government's first year, and the gap left by the failed end gets closed by absence rather than by replacement.

Poland did something like this in 2016. UniCredit sold a ten% stake in Bank Pekao, then Poland's second-largest bank, in an overnight bookbuild that raised about $830 million. The deal cleared at a six percent discount to the prior day's close, which for an overnight transaction of that size in CEE was tight. 

It cleared because Pekao itself was sound, the Warsaw market had liquid free float, and the regulatory environment recognised that a healthy bank's pricing should reflect its own balance sheet, not the system average. I worked on the execution. 

Pekao was a secondary sell-down rather than a primary raise, but the lesson holds: institutional investors took the exposure at a price that reflected the bank, not the system. Bangladesh is not Poland, and a Pekao-style transaction here is years away. 

The structural point still translates. Capital access for the strongest banks does not have to wait for the failed end of the system to be repaired, and systems that run the two tracks in parallel heal faster.

Slovenia took the long way to the same place. NLB's €609 million IPO in November 2018 closed an EU state-aid commitment dating from 2013, after five years of conditional capital injections and supervisory restructuring. 

I worked on that one, too. Bangladesh is at the early stage of its own cycle: the Bank Resolution Ordinance 2025 is in force, the Sammilito Islami merger has consolidated five distressed Islamic banks, and the Distressed Asset Management Act is targeted for June. None of which means the capital channel for the survivors has to wait.

What a parallel-track framework looks like

The Bangladesh Securities and Exchange Commission could publish a tiered framework for bank capital raises that runs alongside the resolution work, the Asset Quality Reviews, and the Sammilito Islami restructuring rather than competing with them. Four design choices would make it useful.

First, eligibility is ranked, not threshold-based. The top five banks on a composite of five supervisory indicators form the eligible cohort: NPL ratio, capital adequacy, audited compliance with the IFRS-9 transitional timeline that the central bank has committed to under the IMF programme, provisioning coverage, and return on risk-weighted assets.

Refresh the cohort on a fixed two-year cycle, so a bank's place has to be earned and re-earned on the data, not on its history.

Publish the indicator weights openly and hold them constant across cycles. The obvious failure mode of a composite ranking is lobbying capture; publishing the weights and leaving them alone is the discipline.

Last, run it as a fast-track approval lane within the existing BSEC architecture, not a separate regulatory regime.

A first scaled domestic equity issuance by even one of the top-five would put the DSE back in primary-market activity for the first time in over two years. It would also mean the strongest banks have a route to capital that the failed end's problems can't indefinitely block.

Fahim Chowdhury is an investment banker who has raised over $200bn and executed 500+ capital markets transactions in 30+ markets. He is currently Managing Director at RetailBook and was previously at Citi. Contact: fahim@arcapholdings.co.uk  ·  London, UK

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