One-third listed companies classified as ‘junk stocks’
Gazi Anowar :
Bangladesh’s stock market is facing a growing crisis, with almost one-third (29 per cent) of the listed companies now classified as “junk” or “Z-category” stocks.
Out of the 350 listed companies, 103 are currently in the Z category, signalling weak financial health and poor governance.
This classification aims to deter investors from engaging with these stocks, but the rapid rise in their numbers is causing serious concern within the financial community.
According to the Dhaka Stock Exchange (DSE), the number of Z-category companies has surpassed 100.
Notably, Global Islamic Bank, which was listed in 2022, was downgraded to the Z category in less than three years due to poor performance.
Additionally, companies like Samata Leather, Golden Son, SS Steel, Amra Technologies, and Amra Networks were recently added to this list, primarily for failing to distribute dividends to shareholders on time.
However, Golden Son distributed its dividends on Thursday, allowing it to return to the “B” category starting Sunday.
The Z category is part of a regulatory framework established by the Bangladesh Securities and Exchange Commission (BSEC), aimed at identifying and flagging companies with weak financials and poor management.
These companies typically fail to meet basic requirements, such as timely dividend payouts or holding annual general meetings (AGMs).
Professor Abu Ahmed, a former professor at Dhaka University and Chairman of ICB Asset Management Company, told The New Nation, “For 15 years, the stock exchange and market stakeholders have opposed the listing of low-quality companies, but the regulatory authority did not take these concerns seriously.
It is now time to overhaul the IPO regulations and rethink the classification of companies.
Furthermore, the power to list and delist companies should rest with the stock exchanges.”
He added, “A looting class has been created over the past 15 years, destroying Bangladesh’s stock market.
It will take time to recover. However, the problem is that no IPO has been filed in the last six months. The market must be fixed, even if it requires government subsidies.”
The surge in junk stocks is sending a troubling message to both local and foreign investors. According to Faruk Ahmed Siddiqui, former chairman of BSEC, this trend is concerning for the overall health of the market.
“When a third of the listed companies turn into junk stocks, it sends a very negative signal to investors,” Siddiqui said. “Such news discourages good investors from participating, and this will hurt the market in the long run.”
Market experts are urging a thorough reevaluation of the current classification process to prevent further erosion of investor confidence.
They fear that if this trend continues, the number of viable companies will shrink, and the market could descend into chaos.
The number of Z-category companies has been rising sharply, with 60 companies classified as junk stocks in 2024 alone, and 16 already in 2025.
According to market participants, this rapid increase is largely due to new regulations by the Bangladesh Securities and Exchange Commission (BSEC), which mandates that companies failing to distribute 80 per cent of declared dividends or failing to hold AGMs on time must be classified as Z-category.
Currently, the Bangladesh stock market has four categories: “A”, “B”, “N”, and “Z”. Companies that provide more than 10 per cent in dividends and hold regular AGMs are classified as “A”. Those offering lower dividends are classified as “B”.
Newly listed companies are given “N” status, while companies that fail to meet basic financial and operational requirements, or are unprofitable, are placed in the “Z” category.
However, as more companies are downgraded to the Z category, market liquidity is suffering.
Trading of Z-category stocks is slower, as they are no longer eligible for loan facilities, and settlements take longer-up to three days.
Experts believe this not only hampers trade but also exacerbates volatility in the market.
In addition to the growing number of Z-category stocks, concerns about market manipulation have emerged.
Rumours are often spread to artificially inflate the prices of these low-quality stocks, resulting in ordinary investors bearing the losses when these stocks ultimately plummet.
Recently, five of the top ten stocks with the highest price increases on the DSE were from the Z category, including companies such as New Line Clothings, Apollo Steel, Nurani Dyeing, Ring Shine Textiles, and Renwick Jajneswar.
With more companies being classified as junk stocks, there is growing consensus that the BSEC needs to revisit its policies and regulations.
Experts believe changes are crucial to prevent further deterioration of investor sentiment.
There is also a strong push for the creation of a task force to recommend reforms, focusing on the IPO process and company classification.
Dr. Mustafizur Rahman, Distinguished Fellow at the Centre for Policy Dialogue (CPD), pointed out that many Z-category companies fail to meet regulatory requirements and lack transparency in financial reporting, making them unreliable for long-term investment.