Moody’s ratings: Moody’s Investors Service has reduced Bangladesh’s banking sector ratings from weak to negative. The main reason for this change is the decline in customers’s trust, limited transparency.
In addition, Moody’s has changed the access to the banking system from “stable” to “negative”, which cited rising inflation, political instability and deteriorating economic conditions.
The main concerns of the report:
Growing non-performing loan (NPA) rates
Slow economic growth and rising inflation
Political and social instability
Increase in foreign exchange crisis and interest rates
Bangladesh’s economic status and GDP growth declines
According to Moody’s, Bangladesh’s GDP growth rate is likely to be reduced to 4.5% in the financial year 2025, which was 5.8% last year. Many reasons are responsible behind this.
Increased increase in inflation: Possibility of staying up to 9.8% in 2025
Increase in interest rates: Bangladesh Bank increased policy rates from 6% to 10% in 15 months
Reduction in foreign investment: Due to global uncertainty and political instability
Due to the recession of the banking sector: The main cause of recession in the banking sector is increasing NPA (non-performing loans). By September 2024, the systemwide NPA ratio increased from 9% to 17%.
Impact on banking system
According to Moody’s, Bangladesh’s government -owned banks are at the highest risk. By September 2024, the average capital-from risk-risk-load-property ratio of public sector banks was-2.5%, which is much less than 9.4% of private banks and below the regulator minimum limit.
Bangladesh Bank’s policies and government’s response
Bangladesh Bank has taken several steps to control inflation, including an increase in interest rates. However, experts believe that this may slow down the loan growth of the banking sector.
Analysts believe that Bangladesh needs to accelerate banking reforms and increase transparency. Actually, Bangladesh’s economy may remain strong.
The government gives priority to banking reforms. Strict rules are implemented to control NPAs, and banking transparency and financial monitoring are promoted. Let us know that the banking system can be stable if the reforms are made. At the same time, if the situation deteriorates, foreign investment will be affected and the economic recession may deepen.
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