Moody’s Ratings has downgraded Bangladesh’s banking system outlook from “stable” to “negative,” citing increasing asset risks and worsening economic conditions. The report highlights concerns such as deteriorating asset quality, high inflation, and weakening economic growth, which will negatively impact bank profitability and financial stability. Structural risks, including lax regulations and poor corporate governance, remain persistent. Despite liquidity staying stable, the systemwide loan-to-deposit ratio stood at 81% as of September 2024. While the government continues to support banks through regulatory forbearance, this approach masks asset risks and hampers loan recovery. The systemwide non-performing loan (NPL) ratio surged to 17% in September 2024 from 9% just nine months earlier. Moody’s warns that stricter NPL classification rules, set to take effect in April 2025, could further exacerbate the situation. Bangladesh’s real GDP growth is projected to slow to 4.5% in FY 2024-25 from 5.8% the previous year, impacted by political and social instability, supply chain disruptions in the garment sector, and weakening demand. Inflation is expected to remain high at 9.8% in 2025. State-owned banks remain particularly vulnerable, with an average capital-to-risk-weighted-assets ratio of -2.5% as of September 2024, far below the private sector average of 9.4% and regulatory requirements. Moody’s warns these banks will remain undercapitalized due to weak profitability, high NPLs, and a lack of government capital infusions
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