Moody's Investors Service has placed 7 Bangladeshi banks' long-term ratings and assessments on review for downgrade, said the global rating agency yesterday.

The disclosure came after its announcement of placing Bangladesh's long-term ratings on review for downgrade.

"The outlooks have been changed to rating under review," said Moody's.

The banks are: BRAC Bank Ltd, The City Bank Ltd, Dutch-Bangla Bank Ltd, Eastern Bank Ltd, NCC Bank Ltd, Premier Bank Ltd and Mercantile Bank Ltd, according to a statement issued from Singapore on December 12.

Moody's has also downgraded Social Islami Bank Ltd's long-term foreign currency deposit ratings to B3 from B2 and the bank's Baseline Credit Assessment (BCA) to caa1 from b3.

The rating agency has also changed the rating outlooks, where applicable, to stable from negative, it added.

Moody's said the decision to place the ratings and assessments of 7 Bangladeshi banks on review for downgrade is driven by its placement of Bangladesh's Ba3 sovereign rating on review for downgrade on 9 December 2022.

"Bangladesh's sovereign credit strength is a key input in Moody's assessments of bank ratings because the country's credit strength affects the government's capacity to provide support to the banks in times of stress," it said.

If Moody's were to downgrade Bangladesh's sovereign rating, it will likely result in lower long-term ratings for the banks, it added.

The rating action also considers the deterioration in the country's foreign exchange reserves and central bank's measures to limit foreign currency outflows, which have tightened foreign currency liquidity in the banking system.

"During the rating review, Moody's will assess if the efforts instituted by the central bank and individual banks to improve their foreign currency liquidity, such as limiting the opening of new letters of credit and efforts to attract remittances, will help to improve the banks' foreign currency liquidity to support their obligations," said the agency.

It said given the review for downgrade, the 7 banks' BCAs and long-term ratings are unlikely to be upgraded during the review period.

"Nonetheless, Moody's could confirm the ratings if Bangladesh's sovereign rating is maintained at Ba3 and the banks' standalone credit strengths remain unchanged."

However, Moody's said a downgrade of the sovereign rating could lead to a downgrade of the 7 banks' BCA and long-term ratings.

Moody's could also downgrade their ratings and BCAs if there is a material deterioration in their standalone credit strengths, it added.

DOWNGRADE OF SIBL'S RATINGS

Moody's said the downgrade of SIBL's BCA and long-term ratings reflect the bank's weak solvency and liquid buffers, which have deteriorated further amid a tight funding environment.

"Prior to this action, the ratings of SIBL were already on a negative outlook, reflecting the bank's weak solvency and constrained access to funding," it said.

Moody's said it could upgrade SIBL's BCA and long-term ratings if the bank manages to increase the share of high-quality liquid assets and reduce reliance on market funds on a sustained basis.

Specifically, Moody's could upgrade SIBL's ratings if the bank's ratio of liquid banking assets to tangible banking assets remains above 15 per cent and there is an improvement in the quality of liquid assets, according to the press release.

Moody's could also upgrade SIBL's ratings if the bank's ratio of market funds to tangible banking assets remains below 15 per cent and there is an improvement in the bank's deposit composition.

An improvement in the bank's solvency will also be positive for its ratings, it said.