Bangladesh's banking sector is facing one of the gravest crises in its history, as weak governance, mounting capital erosion and worsening operational failures triggered a brutal stock market sell-off after 15 banks were dumped into the "Z" category last week, intensifying fears over the sector's financial stability.
The dramatic downgrade came after Bangladesh Bank enforced a tougher dividend declaration policy on March 15, barring financially weak banks from distributing profits to shareholders unless they meet strict regulatory conditions aimed at safeguarding the sector's stability.
The fallout was immediate and severe. Banking stocks dominated the market's losers' chart as panicked investors rushed to offload shares amid growing fears over hidden financial weaknesses and rising risks across the sector.
Of the 15 worst-performing stocks of the week, eight were banks.
Mercantile Bank suffered the sharpest plunge, with its share price crashing 20.45 per cent. City Bank tumbled 18.18 per cent, AB Bank lost 13.21 per cent, Eastern Bank fell 12.77 per cent, IFIC Bank dropped 12.24 per cent, Premier Bank declined 11.11 per cent, Trust Bank shed 10.11 per cent and Al-Arafah Islami Bank slipped 10.07 per cent.
The latest downgrade pushed the total number of banks in the Z category to 15, marking an unprecedented deterioration in the country's listed banking sector. Five additional banks remain suspended from trading due to ongoing merger processes.
Excluding banks under merger arrangements, nearly 48.39 per cent of tradable listed banks are now categorised as weak or distressed institutions. Including merger-affected banks pushes the figure to 55.56 per cent - the highest proportion of troubled banks ever recorded in Bangladesh's stock market history.
The newly downgraded banks are AB Bank, IFIC Bank, One Bank, Premier Bank, Rupali Bank, NRB Bank, Mercantile Bank, UCB, Al-Arafah Islami Bank and NRBC Bank.
Earlier, Islami Bank Bangladesh PLC, Standard Bank PLC, SBAC Bank PLC and National Bank PLC had already fallen into the Z category.
Under the central bank's revised rules, banks are barred from declaring dividends if they fail to maintain adequate loan-loss provisioning or do not comply with mandatory Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR) requirements.
Market analysts said the latest move exposed the fragile financial condition of many banks already struggling with soaring default loans, weak balance sheets, governance failures and long-running financial irregularities.
According to stock exchange regulations, listed companies that fail to declare dividends for two consecutive years are transferred to the Z category. Once downgraded, such companies face tighter trading restrictions and lose access to margin loan facilities, significantly reducing investor confidence and market liquidity.
The crisis has also dragged bank share prices far below their face value. Currently, 13 listed banks are trading below Tk10 per share. Including banks under merger processes raises the number to 18 - nearly half of all listed banks in the market.
Mercantile Bank's share price plunged from Tk8.80 to Tk7.00 in just one week, while City Bank fell from Tk33 to Tk27. AB Bank dropped from Tk5.30 to Tk4.60, IFIC Bank slid from Tk4.90 to Tk4.30 and Al-Arafah Islami Bank declined sharply from Tk14.90 to Tk13.40.
A Dhaka Stock Exchange official said the sudden transfer of 10 banks into the Z category triggered panic selling among investors, accelerating the collapse in banking stocks.
Market insiders said investors are increasingly alarmed over the true financial health of several banks amid persistent concerns surrounding governance failures, rising non-performing loans and widespread financial mismanagement.
Although a handful of banks, including Brac Bank, City Bank and Pubali Bank, reported strong profits and paid dividends last year, analysts warned that the deepening crisis among weaker lenders is now contaminating confidence across the entire banking sector.
