Six Bangladeshi banks grapple with higher NPLs and gov’t risks

Three banks will see more BNPLs; two banks face deteriorating asset quality.

Bangladesh’s banking sector faces deteriorating operating conditions amidst ongoing political and governance issues.

In a report, Moody’s Ratings changed the macro profile of Bangladesh’s banking system from Weak- to Very Weak+.

Over the past year, depositor and investor confidence in the banking sector has ‘significantly’ declined amidst concerns in the sector’s corporate governance, transparency, and inadequate financial sectors, reports Moody’s Ratings.

“We anticipate that the central bank's initiative to enhance asset quality recognition will cause a near-term surge in non-performing loans (NPLs) but contribute to greater systemic stability,” Moody’s said in a report on six Bangaldeshi banks.

The six banks— BRAC Bank, City Bank, Dutch-Bangla Bank, Eastern Bank, Mercantile Bank, and Premier Bank– all saw their LT deposit ratings changed to negative from stable.

BRAC has a large direct exposure to government debt, whilst City Bank, Eastern Bank, and Dutch-Bangla Bank are expected to experience “larger-than-expected” increases in their non-performing loans (NPLs).

The four banks’ funding and liquidity should remain stable or have improved over the year.

Mercantile Bank and Premier Bank, meanwhile, are seeing worsening asset quality due to their loan concentration to risky borrowers. The two banks also face weakened profitability, growing contingent liabilities, and modest loss absorbing buffers, Moody’s said.

Moody’s also raised governance concerns over Premier Bank’s board independence and oversight; as well as the bank's rising asset risks and low loss absorbing buffers.

The negative outlook revisions come after Moody’s downgraded the Government of Bangladesh’s sovereign rating to B2 from B1, with a negative outlook.

The ratings agency highlighted Bangladesh’s “heightened political risks and lower economic growth”, which increases government liquidity risks, eternal vulnerabilities, and banking sector risks.