Moody's upgrades Social Islami Bank's outlook to stable
The global ratings agency says Social Islami Bank’s foreign currency liquidity has improved, supported by the strong inflow of remittances
Moody's Investors Service has changed Social Islami Bank PLC's rating outlook to stable from negative as it expects the lender's funding and liquidity to remain stable over the next 12-18 months.
"Depositor confidence is returning in the bank as reflected by the continued deposit growth in the June and September 2023 quarters, amid tight liquidity conditions in Bangladesh," said the global ratings agency in a statement on Tuesday.
The statement said Social Islami Bank's foreign currency liquidity has improved, supported by the strong inflow of remittances from overseas Bangladeshis.
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The bank's deposit base has also become more granular, driven by the increase in retail deposits, which will reduce the likelihood of large deposit outflows.
Nonetheless, the bank remains vulnerable because of its very weak liquidity buffers, Moody's said.
"As of 30 September 2023, liquid assets as a percentage of total assets was low at 8.2%. In addition, 80% of the government securities holdings were encumbered as collateral for borrowings from the central bank to enable the bank to meet the minimum regulatory Cash Reserve and Statutory Liquidity ratios. This limits SIBP's [Social Islami Bank] access to immediate funding that requires collateral," Moody's further said.
The bank's solvency metrics have remained broadly stable over the past one year. As of December 2023, its nonperforming loans (NPL) ratio declined moderately to 4.6% from 4.7% a year earlier while the Common Equity Tier 1 increased to 7.1% from 7.0% over the same period. For the nine months ended 30 September 2023, the bank's annualised return on assets was stable at 0.4% compared with that during the year earlier period, reads the statement.
"However, the bank remains susceptible to large defaults because of its single-borrower concentration and modest provision coverage. The bank capitalisation is weak because of its low profitability, driven by high funding costs," it added.
The statement further said Moody's could upgrade Social Islami Bank's deposit and issuer ratings if its standalone credit strength improves.
Also, Moody's could lower the Social Islami Bank's BCA and downgrade long-term ratings if the bank's funding and liquidity worsen. A spike in the NPL ratio, leading to a deterioration in capital and profitability will also be negative for the ratings.
Social Islami Bank, headquartered in Dhaka, reported total assets of Tk43,600 crore as of 30 September 2023.
