The Brief.

The capital arithmetic is frozen; the day's development is fiscal, not financial. NPL holds 32.26% on the Mar 2026 print while CAR (Capital Adequacy Ratio) sits 1.56% on the Sep 2025 read — 844bp below the 10% floor — the bad-loan share eased but solvency never followed, still write-off and reclassification rather than borrowers curing. The FY27 budget is the one signal that touches banks: its pivot to offshore financing — more abroad, less at home — eases the sovereign crowding that BDT 1.25tn of YTD bank borrowing built, freeing some balance-sheet capacity. It closes none of the capital hole. Demand is no help — private credit growth read 6.03% in February — so the binding constraint is capital, not appetite. The desk holds no fresh state-lender or stressed-private exposure and treats the bank-level Q1 2026 disclosures, due June, as the only print that separates write-off from recovery.

The belly priced the budget. The 5y bond fell 41bp to 10.37% from 10.78% — a sharp richening — while the T-bill front-end held its prior cuts (91d 10.07%, 182d 10.17%, 364d 10.20%) and the 10y cheapened 5bp to 10.96%. The mechanism: the FY27 budget tilts deficit financing offshore — more abroad, less at home — removing expected domestic supply from the belly, so 5y paper bids; the long end cheapened because external borrowing adds FX and term-premium risk further out. For ALCO, the rally lifts mark-to-market on 5y holdings but compresses the duration spread the desk earns; for equities, the lower belly extends the front-end relief that re-armed DSEX. Watch the first post-budget auction — if domestic borrowing returns despite the offshore plan, the 5y gives back the 41bp fast.

The budget's signal is the financing mix, not the headline number. FY27 plans Tk 9.38tn against a revenue base ranked just above Sudan and Yemen — and the pivot is to borrow more abroad, less at home. That eases the domestic crowding that pushed govt bank borrowing to BDT 1.25tn YTD, already past the FY26 ceiling; the relief shows in the bond market, where the 5y rallied 41bp. But the offshore tilt trades one risk for another — less bank crowding, more FX-denominated debt service against a $34.55bn reserve base and a shrinking export line. NBR at BDT 3.27tn YTD trails target, so the structural gap is unchanged: GDP crosses half-a-trillion on one of the world's thinnest tax takes, with $564m of Japan/AIIB support the cushion. The desk reads the bank-borrowing line as the swing variable for both the front-end and the equity bid.