Global rating agencies retain stable outlook for Bangladesh

Staff Correspondent | Published: 22:12, Jul 24,2018 | Updated: 00:02, Jul 25,2018

 
 

Three global rating agencies have retained a stable economic outlook for Bangladesh due mainly to a strong economic growth and improvement in external profile.
The agencies, however, mentioned poor corporate governance in the state-owned commercial banks, which are now facing significant financial risks, as the negative factor for the country’s economy.
Bangladesh Bank on Sunday published on its web site the latest sovereign credit rating reports of Moody’s Investors Service, Standard & Poor’s (S&P) and Fitch Ratings.
S&P Global Ratings kept its long-term and short-term sovereign credit ratings of the country unchanged at ‘BB-’ and ‘B’ respectively.
‘The stable outlook reflects our expectation that Bangladesh’s consistent economic growth trajectory and strong donor support will continue to raise average income and broadly sustain the country’s external profile over the next 12 months,’ S&P said.
‘These factors are balanced against enduring governance and fiscal weaknesses, and infrastructure deficits,’ it said.
It, however, said that the rating agency might downgrade the sovereign if fiscal slippages resulted in rising public debt and external donor support declined materially.
On the other hand, S&P may raise the ratings if measures targeted at growing the revenue base and boosting collection efficiency materially improve Bangladesh’s fiscal performance, it said.
Besides, significant reduction of energy, infrastructure and administrative bottlenecks would also help S&P improve its rating on Bangladesh.
Speaking about the country’s political situation, S&P said that the next general elections were generally expected to be held by end-2018.
‘Although the domestic security situation has improved recently, we do not rule out the possibility of violence leading up to the elections,’ it said.
It, however, said that strikes and politically related violence had not been overly disruptive to overall economic growth in the past.
Moody’s assessed that Bangladesh’s banking sector risk as ‘Moderate (-)’, which indicated that the country’s banking sector did not perform well enough.
The country’s state-owned banks account for 30 per cent of banking system assets and exhibit significantly weaker asset quality, profitability, and capital adequacy than the private commercial banks.
Gross non-performing loans of state-owned banks amounted to 29.3 per cent of total loans in the third quarter of 2017 compared with 6 per cent for private commercial banks, and have been rising since 2015.
Moody’s outlook mentioned that institutional or political setbacks, crystallization of contingent liabilities from the banking system and a structural deterioration in Bangladesh’s external position might downgrade the country’s rating.
On the other hand, it said that improvements in the fiscal and operating environment including fiscal reforms, material progress in developing critical transportation and power infrastructure, meaningful improvements to the investment climate could help the country’s improvement in credit rating.

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