US-based global ratings agency Moody's Investors Service today downgraded the credit rating of six local banks by one notch, a day after it cut the sovereign credit rating for Bangladesh.

The seven lenders are Brac Bank, City Bank, Dutch-Bangla Bank, Eastern Bank, NCC Bank and Premier Bank.

The latest rating actions on the seven banks follow Moody's lowering of the long-term rating of Bangladesh to B1 from Ba3 on May 30, said the company in a report yesterday.

Selim RF Hussain, chairman of the Association of Bankers, Bangladesh, a platform for managing directors of banks in the country, says that the credit rating for local banks slipped by one notch automatically as the country's sovereign rating has been downgraded.

"The cost of doing international business is likely to increase due to the downgrade of the sovereign credit rating."

Local banks will have to pay more in charges, fees, and commissions while settling letters of credit with foreign banks, said Hussain, also the managing director of Brac Bank.

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 said that the downgrade of the ratings of Brac Bank, City Bank, DBBL, and EBL is driven by the cut in the sovereign rating, which measures the country's capability to provide support to banks in times of stress.

The confirmation of Brac Bank's rating of b1 reflects its better asset quality and capital compared to peers, strong deposit base and access to funding and good liquidity, said Moody's in the report.

The confirmation of City Bank, DBBL, and EBL's b2 has reflected their moderate asset quality, profitability, and capitalisation, supported by their stable deposit bases and adequate liquidity.

The lowering of rating for Premier Bank and NCC Bank to b3 from b2 points to their deteriorating asset quality.