The study titled 'Financial Sector Review' also found that the NCBs, burdened by high non-performing loans (NPL), were thus unable to meet many regulatory standards.

"Recapitalisation of these entities on an ad-hoc basis as has frequently been the case, merely allows a breathing space within which hard decisions would have to be taken," the study says.

The review, first of its kind by the Bangladesh Bank, covered, among other issues, market for financial products, banking sector, capital market and non-banking financial sector, regulatory infrastructure and financial policy stance.

Dwelling on the private commercial banks (PCBs), the study said with faster growth, the PCBs, which have adequate capital, are performing well in terms of low ratio of non-performing or bad debts and have sustained profitably in the banking sector.

A few banks with small capital base require a syndication of banks for any large project financing, which tends to be cumbersome and time consuming, the study observed.

It said merger of small banks into larger and stronger entities would be a way forward as in other developed financial markets. Facilitating issuance of rated debt securities by the projects in the capital market will be the other mode of large project financing, the study maintained.

It further said deposit to GDP ratio has grown steadily in recent years standing at 39 percent in 2005, which is almost similar to the case of Pakistan but well behind the 60 percent figure for India.

Among categories of advances, demand for 'working capital for the industrial sector' has been growing with a strong reflection of entrepreneurial momentum, noted the review.

Housing finance by banks and non-banking financial organisations has also shown a steady growth, while the growth rate of credit to the transport and communication sector, however, has slowed down in the FY 2005 in real terms reflecting limitations of the system in dealing with project and infrastructure finance, it said.

The review that also covered capital market said Bangladesh is well behind on this front with comparison with some major South Asian countries

"Inefficiency in disclosure of financial statements, weakness of corporate governance in most of the non-financial corporate bodies, frequent availability of non-market return on risk-free government debt are lagging behind the development of a vibrant equity market," revealed the study.

On recent developments in regulatory infrastructure, the BB has amended the Bangladesh Bank (Nationalisation) Order 1972 to improve governance of NCBs through restructuring and privatisation, setting up the Credit Information Bureau (CIB) and creating the Central Depository Bangladesh Limited (CDBL), the review further noted.

On policy stance, the BB review said Bangladesh has to reach the standards of other fast growing countries to accelerate the output pace consistent with the millennium development goal (MDG) benchmarks.