Moody’s Downgrades Bangladesh’s Banking Sector Credit Rating

Citing concerns over weak economic growth and an uncertain outlook for Bangladesh’s banking sector, global credit rating agency Moody’s has downgraded the country’s credit rating. The rating has dropped from ‘B1’ to ‘B2’, shifting the country’s economic outlook from ‘stable’ to ‘negative’.

On Wednesday (March 12), Moody’s released a report highlighting rising asset risks and deteriorating economic conditions in Bangladesh, which could put pressure on banks' profitability and stability.

According to Moody’s, the banking sector’s future remains uncertain due to worsening asset quality, high inflation, and sluggish economic growth. The agency has also forecasted that Bangladesh’s real GDP growth will decline to 4.5% in the 2024-25 fiscal year, down from 5.8% in the previous year, marking a 1.3 percentage point drop. The banking sector is facing a difficult period, and without government support, banks may encounter even greater challenges.

Key Reasons for the Downgrade
Moody’s has identified four main reasons for lowering Bangladesh’s credit rating:

• Deteriorating economic conditions
• Increasing risks for banks
• Rapid rise in non-performing loans (NPLs)
• Soaring inflation

The report points out that political and social instability, disruptions in the garment sector’s supply chain, and declining demand in both domestic and international markets are major contributors to the economic slowdown.

To control inflation, Bangladesh Bank has raised its policy interest rate from 6% to 10% over 15 months, yet inflation remains high. Moody’s predicts inflation will stay elevated at around 9.8% in 2025.

Challenges in the Banking Sector
State-owned banks are in worse condition, with a negative capital adequacy ratio of -2.5%, significantly lower than private banks. Without government financial support, the situation of these banks may worsen further.

Bangladesh Bank is set to introduce strict regulations in April 2025 to curb non-performing loans, while also implementing various liquidity support measures to prevent a liquidity crisis.

Moody’s report also warns of increasing asset risks in the banking sector, as NPLs have surged. As of September last year, the NPL ratio had risen to 17%, up from 9% just nine months earlier.

Impact on Economy and Daily Life
The worsening economic outlook is likely to make access to bank loans more difficult, lead to higher product prices, reduce business investments, and affect the job market, making life even more challenging for ordinary citizens.