Moody鈥檚 Ratings has downgraded the outlook for Bangladesh鈥檚 banking system from stable to negative, citing rising asset risks, weakening economic growth, and high inflationary pressures.
The global credit rating agency released its latest report on Wednesday, highlighting concerns that could negatively impact banks鈥� profitability and financial stability.
Moody鈥檚 forecasts that Bangladesh鈥檚 real GDP growth will slow to 4.5 per cent in the fiscal year ending June 2025, down from 5.8 per cent the previous year.
The slowdown is driven by political and social instability, supply chain disruptions in the garment sector, and weakening domestic and international demand.
Additionally, Bangladesh Bank has raised policy rates from 6 per cent to 10 per cent over the past 15 months to curb inflation, which is expected to remain high at 9.8 per cent in 2025.
The report warns of mounting asset risks, with non-performing loans (NPLs) surging from 9 per cent to 17 per cent within just nine months as of September 2024.
聽Asset quality will deteriorate as the operating environment worsens, Moody鈥檚 stated, noting that social unrest has impacted businesses by reducing demand, disrupting supply chains, and creating labor shortages.
The introduction of stricter NPL classification rules in April 2025 could further exacerbate the situation.
Despite these challenges, overall capitalisation is expected to remain stable due to slower credit growth.
聽However, state-owned banks remain highly vulnerable, with an average capital-to-risk-weighted-assets ratio of 2.5 per cent as of September 2024鈥攕ignificantly below the private sector average of 9.4 per cent and the regulatory minimums.
State-owned banks will remain undercapitalised due to weak profitability, high NPLs, and the absence of government capital infusions, the report added.
Liquidity in the banking sector is expected to be stable but tight, with the systemwide loan-to-deposit ratio standing at 81 per cent as of September 2024.
Moody鈥檚 acknowledges that the government is likely to continue supporting banks through regulatory forbearance and liquidity measures to mitigate contagion risks.
The negative outlook reflects the broader economic challenges Bangladesh faces, with prolonged instability potentially worsening financial sector vulnerabilities.