Moody's downgrades six local banks

Moody's Investors Service today downgraded the ratings of six local banks — BRAC Bank, The City Bank, Dutch-Bangla Bank Limited, Eastern Bank, NCC Bank, and The Premier Bank.

It downgraded the long-term (LT) local-currency (LC) and foreign-currency (FC) deposit and issuer ratings of these six local banks of Bangladesh.

It also confirmed Mercantile Bank Ltd (MBL)'s B2 LT LC and FC deposit and issuer ratings.

At the same time, Moody's has changed the outlooks to stable from ratings under review for downgrade on the LT deposit ratings and issuer ratings of the seven Bangladeshi banks.

Moody's has confirmed the Baseline Credit Assessments (BCA) of all the other banks except for NCC and PBL. NCC's and PBL's BCAs are downgraded to b3 from b2.

Today's rating actions follow Moody's downgrade on 30 May of the long-term issuer rating of the Government of Bangladesh to B1 from Ba3 and change in the outlook to stable from ratings under review. The downgrade of the sovereign rating was driven by Bangladesh's heightened external vulnerability and liquidity risks that are persistent, and the sovereign's institutional weaknesses uncovered during the ongoing crisis. 

Moody's rating action concludes the review for downgrade initiated on 12 December 2022.

The ratings of Social Islami Bank Limited (Caa1 negative, caa2) are not affected by these rating actions.

Ratings Rationale

The downgrade of the LT deposit ratings of BRAC Bank, CBL, DBBL and EBL is driven by the downgrade of Government of Bangladesh's rating, which measures the government's capability to provide support to the banks in times of stress. Moody's incorporates a moderate probability of receiving government support in the banks' ratings, based on the banks' private ownerships and modest market shares.

The downgrade of PBL's and NCC's LT deposit ratings to B2 from B1 reflects the downgrade of the banks' BCAs to b3 from b2 and a moderate likelihood of support from the Government of Bangladesh is times of need, which results in a one-notch uplift from their b3 BCAs.

The confirmation of BRAC Bank's b1 BCA reflects its better-than-peer-average asset quality and capital compared with peers', strong deposit franchise and access to funding, and good liquidity.

The confirmation of CBL's, DBBL's and EBL's b2 BCAs reflects their moderate asset quality, profitability and capitalization, support by their stable deposit franchises and adequate liquidity.

The downgrade of PBL's and NCC's BCAs reflects their deteriorating asset quality. The b3 BCAs also consider the banks' modest deposit franchise and higher costs of funding compared with other rated Bangladeshi banks.

The confirmation of MBL's B2 LT deposit and issuer ratings reflects the bank's b3 BCA and Moody's expectation of a moderate probability of support from the Government of Bangladesh in times of need, which results in one-notch uplift incorporated in its B2 ratings.

MBL's b3 BCA reflects the bank's deteriorating asset quality and profitability, balanced by stable capital, funding and liquidity.

Stable Outlook

The stable outlooks on the LT deposit and issuer ratings of the seven Bangladeshi banks are in line with the stable outlook of Bangladesh's sovereign rating. The stable outlooks also reflect Moody's expectation that the banks' credit fundamentals will remain stable as gradual improvements in funding conditions will balance rising asset risks.