Make stock market efficient to cut reliance on bank funds: experts

• Experts urge efficient, investor-friendly capital market
• Policy continuity, streamlined IPOs deemed essential
• Balanced oversight needed for non-listed firms
• Shift from bank loans to market funding

The government must make the capital market more efficient and reduce regulatory burdens to draw new investors and encourage firms to go public, paving the way for a shift from bank-dependent financing to market-based funding, a group of experts ranging from brokers to regulatory officials and bankers said yesterday.

It should ensure policy continuity, streamline initial public offerings (IPOs), and increase oversight of non-listed firms to attract corporates for listing, they said at a discussion on transitioning from bank finance to capital market finance, organised jointly by The Daily Star and IDLC Investments at the newspaper's auditorium.

"For this transition, the capital market needs to be efficient, prudent, and attractive for both investors and issuers," said Shaheen Iqbal, deputy managing director of BRAC Bank. "Many companies are over-leveraged and need restructuring. If they can trust the capital market, they will go public."

Rupali Chowdhury, president of the Bangladesh Association of Publicly Listed Companies, pointed out that lengthy procedures for raising funds in the stock market remain a major hurdle.

"Bank loans are much easier. If the fund-raising process takes too long, the necessity for funds may change," she said.

Inconsistent policies are another big reason behind the market not appearing attractive to investors, Chowdhury also noted. "For example, a company may get listed to enjoy tax incentives, but if the NBR changes the policy after listing, it discourages multinational companies from entering the market."

Saiful Islam, president of the DSE Brokers Association of Bangladesh (DBA), echoed her concern. "Policy inconsistency is a disaster for the market. It ultimately hurts investors," he said, calling for a clear debt-equity ratio to encourage corporates to tap the capital market for large funding requirements.

He also called for balanced regulatory oversight.

"Once a company goes public, it becomes subject to extensive regulatory requirements, which many see as a deterrent. Bringing non-listed companies under similar oversight could encourage them to consider going public," he said.

Ahmed Rashid Lali, former president of the DBA, said the lengthy IPO process is a key impediment.

"If an entrepreneur sees it takes two years to raise funds from the stock market, why would they come here? There is no need to grant the DSE 45-60 days to review an IPO application. It would take only seven days for a DSE panel to complete the review," he said.

Responding to this, DSE Chairman Mominul Islam pointed out that the stock exchange needs to conduct the review meticulously, as the financial disclosures of the applicant companies are not always reliable.

Otherwise, he agreed that "it would take only five to seven days to approve IPOs on a disclosure basis."

"The system became stringent because of some bad companies, and the good companies are victims of that," he said, urging stronger enforcement of financial reporting standards.

"A strong debt market is necessary for the country. If we can fix some operational issues, treasury bonds can be tradable on the stock exchange," he added.

Istequemal Hussain, director of Bangladesh Bank, also spoke of the slow pace in the IPO approval process.

"Corporates seek quick service. Speeding up the approval process for fund-raising could encourage them to come to the market," he said, adding that the banking regulator is taking various measures to make the bond market vibrant.

Md Saifuddin, commissioner of the Bangladesh Securities and Exchange Commission (BSEC), emphasised that the capital market is not only about equity.

"People need to learn from risk-free securities, which are in short supply in the market. Currently, greed dominates, and manipulation is extremely high."

He also noted that there used to be widespread incentives for certain groups and instances of regulatory forbearance, which the BSEC is now addressing.

Mesbah Uddin Ahmed, managing director of IDLC Investments, highlighted the structural imbalance caused by over-reliance on bank loans.

"Bangladesh's rapid economic growth has largely been bank-financed. This over-reliance on bank loans created a structural imbalance, where long-term investments are met through short-term deposit-based funding," he said.

He said globally, emerging economies have market capitalisation-to-GDP ratios of 50 percent to 70 percent, while developed markets often exceed 100 percent.

The ratio is over 100 percent in India, around 51 percent in Vietnam, but only 7 percent in Bangladesh.

"This low ratio shows corporates depend heavily on bank loans, creating systemic vulnerabilities like rising non-performing loans, governance issues, and asset-liability mismatches," he added.

Despite the cost of capital market funding being very low, he said, corporates avoid the market due to poor valuation and lengthy IPO processes.

"To bridge this financing gap, Bangladesh must energise its capital market through high-quality listings from large private and public enterprises, simplified processes and credible incentives for new issuances, a vibrant corporate bond market, and restored investor confidence with enhanced transparency and governance," he added.

Mazeda Khatun, president of the Bangladesh Merchant Bankers Association, noted that the market has not seen a single IPO in the last year, meaning nearly 60 merchant banks are now hungry for work.

She suggested using these entities for advisory services, such as ongoing mergers and acquisitions of banks.

She also said, "The government should plan in the national budget how to raise funds through the issuance of bonds and state-run firms' equity."

Meanwhile, Reza Uddin Ahmed, executive director of City Group, announced that the conglomerate is preparing to get listed on the stock market.

"We are reorganising our board, preparing quarterly reports, and ensuring proper auditing and other things needed to meet regulatory requirements," he said.

Shahidul Islam, former president of CFA Society Bangladesh, warned that the stock market has only 25-30 investable companies, while the rest cannot even borrow from banks because of their poor balance sheets.

"How can investors invest in these companies? Reliability in financial reports and proper enforcement must be ensured," he said.

Sabbir Ahmed, FCA and partner at Hoda Vasi Chowdhury & Co, stated that some companies occasionally fabricate financial reports, and that the Institute of Chartered Accountants of Bangladesh is taking action against auditors involved in such fabrication.

He also highlighted that compliant companies often face high effective tax rates, which should be addressed.

He questioned the state of enforcement, asking how Beximco Ltd was allowed to issue a Tk 3,000 crore sukuk despite having defaulted on a debenture in the 1990s.

The event was moderated by Tanjim Ferdous, in-charge of NGOs and foreign missions at The Daily Star.