Credit rating agency Moody’s Investors Service has placed the long-term ratings for seven Bangladeshi banks on review for downgrade following its decision to review Bangladesh’s long-term rating, bdnews24.com reports.
The seven banks are BRAC Bank, The City Bank, Dutch-Bangla Bank, Eastern Bank Limited, NCC Bank, The Premier Bank and Mercantile Bank.
The decision to place the ratings and assessments of the banks under review is driven by Moody's placement of Bangladesh's Ba3 sovereign rating under reassessment on Dec 9, the agency said in a statement on Tuesday.
Moody’s also downgraded Social Islami Bank's long-term foreign currency deposit ratings from B2 to B3 and the bank’s Baseline Credit Assessment to caa1 from b3. The rating outlooks were also changed to stable from negative.
Banks make agreements with international rating agencies to receive evaluations of their overall financial condition so they can demonstrate their capacity and reliability to investors.
Moody’s has been reviewing the seven banks for a fee under agreements to give them official ratings. As part of those agreements, the agency regularly re-evaluates the ratings of these banks.
“Bangladesh's sovereign credit strength is a key input in Moody's assessments of bank ratings because the country's credit strength affects the government's capacity to provide support to the banks in times of stress. If Moody's were to downgrade Bangladesh's sovereign rating, it will likely result in lower long-term ratings for the banks,” the statement said.
The rating action also accounts for the dwindling of the country’s foreign exchange reserves and the central bank’s efforts to limit forex outflow, which has reduced the foreign currency liquidity in the banking sector.
The rating review by Moody’s will assess the efforts of the central bank and individual banks to improve foreign currency liquidity by limiting the opening of new letters of credit and efforts to attract remittances.
“The downgrade of SIBL's BCA and long-term ratings reflect the bank's weak solvency and liquid buffers, which have deteriorated further amid a tight funding environment,” Moody's said.
If Bangladesh’s sovereign rating is maintained at Ba3 and the banks’ standalone credit strengths stay unchanged, Moody’s could confirm their current ratings.