Moody’s takes negative rating actions on seven Bangladeshi banks

Moody’s confirmed BCAs of all the banks, barring NCC Bank and Premier Bank

Moody’s Investors Service has lowered the long-term deposit and issuer ratings of six Bangladeshi banks while confirming the ratings for another bank a day after downgrading the government’s rating.

Moody’s cut the ratings for BRAC Bank Limited, The City Bank Limited, Dutch-Bangla Bank Limited, Eastern Bank Limited, NCC Bank Limited and Premier Bank Limited while confirming the rating for Mercantile Bank Limited, according to a statement released on Wednesday.

Moody's confirmed the Baseline Credit Assessments of all the other banks except for NCC Bank and Premier Bank, who were downgraded from B3 to B2, while also confirming MBL’s B2 long-term deposit and issuer rating.

At the same time, Moody's has changed the outlooks to stable from under review on the long-term ratings of the seven banks.

Wednesday’s rating actions follow the Bangladesh government’s downgrade of the long-term issuer rating to B1 from Ba3, saying the outlook is stable but gross foreign exchange reserves will remain below $30 billion for the next two to three years.

The downgrade of the sovereign rating was driven by Bangladesh's heightened external vulnerability and liquidity risks that are persistent, and the sovereign's institutional weaknesses uncovered during the ongoing crisis as the government prepares to unveil its budget for FY24 later this week, Moody's said.

Moody's rating action concludes the review for downgrade initiated on Dec 12, 2022.

The ratings of Social Islami Bank Limited (Caa1 negative, caa2) are not affected by these rating actions, the statement added.

CONFIRMATION OF BCAs

The confirmation of BRAC Bank's B1 BCA reflects its better-than-peer-average asset quality and capital compared with its peers, strong deposit franchise and access to funding, and good liquidity, Moody’s said.

The confirmation of City Bank, Dutch-Bangla Bangla and Eastern Bank’s B2 BCAs reflects their moderate asset quality, profitability and capitalisation, support from their stable deposit franchises and adequate liquidity, it added.

The downgrade of Premier Bank and NCC Bank's BCAs reflects their deteriorating asset quality. The b3 BCAs also consider the banks' modest deposit franchise and higher costs of funding compared with other rated Bangladeshi banks.

MERCANTILE BANK’S BCA

The confirmation of Mercantile Bank’s B2 long-term deposit and issuer ratings reflects the bank's B3 BCA and Moody's expectation of a moderate probability of support from the government in times of need, which results in one-notch uplift incorporated in its B2 ratings.

Mercantile Bank’s b3 BCA reflects the bank's deteriorating asset quality and profitability, balanced by stable capital, funding and liquidity, Moody’s said.

STABLE OUTLOOK

The stable outlooks on the long-term deposit and issuer ratings of the seven banks are in line with the stable outlook of Bangladesh's sovereign rating.

The stable outlooks also reflect Moody's expectation that the banks' credit fundamentals will remain stable as gradual improvements in funding conditions will balance rising asset risks.

FACTORS

Moody's said it was unlikely to upgrade BRAC Bank's long-term deposit and issuer ratings and BCA because these are already at the same level as the sovereign rating.

However, it could upgrade the other banks' ratings and BCAs if there are material improvements in their standalone credit profiles, which include strengthened solvency due to lower asset risk and better capitalisation as well as an improvement in the bank's funding and liquidity, according to the statement.

Moody's also said it could downgrade the banks' ratings and BCAs if there is a deterioration in the sovereign's credit profile, a weakening in the banks' operating environment or material deterioration in the banks' solvency or funding.