Moody’s has revised the outlook for Bangladesh’s banking industry from stable to negative because of the risks related to its assets and worsening economic circumstances. The downgrade reflects the heightened fear related to the country’s financial solidity and overall economic well-being.
A recent study brings forth certain major issues including weakening quality assets, embedded inflation, and decelerating growth. The real GDP expansion in Bangladesh is expected by Moody’s to decelerate from 5.8% earlier to 4.5% for FY25. Operating environment is expected to weaken following economic slowdown, inflationary pressures, and ongoing political and social tensions. The banking industry is grappling with the accumulation of non-performing loans (NPL). The September systemwide NPL ratio stood at 17% from 9% nine months. The economic outlook will further erode the quality of assets, says Moody’s. New and tighter NPL classification guidelines becoming applicable from April 2025 might further aggravate the problem. Inflation is also expected to remain high at 9.8% through 2025. Bangladesh Bank raised the policy rates from 6% to 10% within the last 15 months with a goal to control the inflation and stabilize the economy. Nevertheless, the enterprises are still continuing tolerating the blow from poor demand, supply chain disruption, and labor shortage.
Read More: Beximco Group operate independently without any receiver
Bank capitalization is weak with the private sector banks sitting currently at -2.5% as of September 2024 short of the regulatory level of 9.4%. The chances are the banks will stay undercapitalized with the high NPL level and no notable capital infusion by the government. System liquidity shall likely remain stable but tight around the level of 81% loan-to-deposit ratio towards the end of September 2024. The government will further support the industry through regulation and injection of liquidity with the aim not to allow further financial instability. Moody’s most recent outlook predicts challenging times for the banking industry in Bangladesh with increasing threats toward profitability and financial strength.
Source: The Business Standard
