Bangladesh’s volatile political situation elevates banking sector risks

S&P Global Ratings on Wednesday said the political situation in Bangladesh has exacerbated the banking industry's frailties, including weak liquidity, thin capital buffers, and ailing asset quality.

"We see the risk of policy inaction and a potential slowdown in financial reforms," said S&P Global Ratings credit analyst Shinoy Varghese.

At Bangladesh Bank, the departure of the governor and some senior officials could delay some of the ongoing structural reforms.

For example, the central bank is due to implement prompt corrective actions in March 2025. This would have forced many banks to focus on capital adequacy, stressed assets, and weak corporate governance.

“Nonetheless, we believe the day-to-day operations of Bangladesh Bank are unaffected. The central bank has been able to provide liquidity backstops to banks, both in domestic and foreign currencies, and also conduct clearing and settlement”.

It said: “We see signs that banking operations are gradually returning to normal after weeks of unrest that culminated in the country's abrupt change of government in early August”.

ATMs are now getting loaded with cash under private security cover. As per the latest circular from Bangladesh Bank, banks are to limit cash withdrawals to Bangladesh taka (BDT) 200,000(about US$ 1,700) per account, given the unpredictable security situation.

jasimharoon@yahoo.com