BD state-owned banks prone to sizeable liability risk: Moody's

Bangladesh's banking sector risk has been assessed as 'moderate' by the international credit rating agency Moody's, which said it reflects sizeable contingent liability risks from state-owned banks.

Bad debt has been dogging the banking sector in Bangladesh with the total amount of capital deficit in state-owned banks of Sonali, Rupali, Janata and BASIC standing at more than Tk 76.26 billion, according to a bdnews24 report.

The government had injected Tk 102.72 billion into state banks as recapitalisation facility during the period from the fiscal year (FY) 2006 to FY 2017, Finance Minister AMA Muhith said in parliament last month.

In its just-released annual credit analysis titled 'Bangladesh-Ba3 Stable', Moody's said it expects economic growth to stay steady at 6.7 per cent in FY2018, maintaining the average in the last five years.

"Strong export growth will largely be offset by rising capital goods imports, leaving domestic demand-supported by higher remittances-as the main growth driver," Moody's said. Describing Bangladesh's growth trend as 'much stronger than similarly rated sovereigns', Moody's, however, said the precondition was that the upcoming elections later this year would not cause any major disruptions to the economy.

Bangladesh's credit profile is supported by strong growth, macroeconomic stability, modest government debt burden and access to concessional funding, according to the agency.

It, however, underscored credit challenges stemming from a narrow revenue base and "very low institutional capacity that constraints competitiveness".

Driven by the garment industry, Bangladesh will see a robust economic activity, according to Moody's, but it pointed out that it expects to widen the fiscal deficit in FY 2018. It projected the deficit to grow to 5.2 per cent of the GDP due to the government's increased infrastructure spending ahead of the national election.

The agency expects the revenue-to-GDP ratio to remain among the lowest in the world, which it attributed to the delay in implementation of the new VAT law.