Moody's places Social Islami Bank on review for downgrade

The international rating agency Moody's has placed the long-term ratings and assessments of Social Islami Bank PLC (SIBP) on review for downgrade, including the bank's long-term foreign and local currency deposit ratings.

"We would downgrade the rating if the bank's credit profile weakens due to, among other things, lower liquidity, higher asset risk, or funding pressure. A worsening of government support for the bank would also result in a rating downgrade," reads a Rating Action of the agency published on Thursday (22 August).

The warning has been issued as the Social Islami Bank, one of the six banks controlled by S Alam Group, has come under the regulator's scrutiny for liquidity crunch and mismanagement. The bank's shares have been frozen and the central bank's new governor earlier this week warned that banks would no longer get "illegal" liquidity support.   

Moody's said it has also placed the bank's baseline credit assessment, the counterparty risk rating and the long-term counterparty risk assessment under review for a downgrade "due to our concerns over SIBP's viability amid weakened funding and liquidity, as well as increased asset risks." 

These risks have heightened due to recent social unrests in Bangladesh, which highlight significant governance issues in the country's Islamic banks, including SIBP, it added.

The rating agency mentioned that it has downgraded SIBP's BCA and adjusted BCA to CAA3 from CAA2 due to increased downside risks to the bank's already weak liquidity, as heightened corporate governance concerns on Islamic banks following the change in government may weaken confidence. 

It has also downgraded the bank's long-term CRR and CR assessment to Caa1 and CAA1(CR) respectively, aligning those ratings with the bank's CAA1 deposit ratings. 

"This adjustment stems from our expectation that, in case of SIBP's resolution, Bangladeshi authorities will not distinguish between the bank's operational liabilities and its obligations to depositors and other creditors," it added.

The agency said, given the review for a downgrade, the ratings are unlikely to be upgraded.

"We could revise the outlook back to stable if the bank maintains its solvency, including access to the central bank's emergency liquidity facility, and addresses its financial and governance risks," it added.