Home ›› 29 Apr 2020 ›› World Biz
The outlook for the Bangladeshi banking sector remains negative for the next 12 to 18 months, as business disruptions caused by coronavirus pandemic will weaken the banks’ operating environment, according to a recent report of the global rating agency Moody's Investors Service.
The ‘Banking System Outlook Update’ report said Bangladesh economy was facing disruptions to both domestic and export demands caused by the pandemic, resulting in a further decline in the banks’ credit profiles.
“This adds to their persistent weakness in asset quality, a result of poor corporate governance, as well as weak laws and regulations,” said the report.
Moreover, the fall in remittance inflows due to disruptions in the Middle East will also affect consumption and investment in Bangladesh.
Nonperforming loans will increase across multiple sectors including garment, retail, manufacturing and trade services, the report predicted.
It said the major indicator of the banks will contract because of the fall in loan repayments and a regulatory 9 per cent cap on lending rates that came into effect on April 1.
Besides, banks’ profits will deteriorate due to higher credit costs and lower net interest margins between lending and deposit.
Capital base in the banking sector will decline too amid a slow capital accumulation because of weaker profitability.
The tax rules imposed on retained earnings with effect from July last year will further restrict internal capital generation at listed banks.
The central bank on April 12 raised the advance-deposit ratio by 2 percentage points to 87 percent for conventional banks and 92 percent for Islamic banks.
But banks will still find it difficult to control their loan-deposit ratio in the days to come due to their difficulties in mobilising deposit amid economic fallout, added the report.
/at/teb
