Three global ratings agencies have identified poor governance standards and weak financial health as risk factors for the Bangladesh's banking sector, particularly for public banks.
The agencies -Moody's Investors Service, Standard & Poor's (S&P) and Fitch Ratings-have also rated Bangladesh's outlook as stable, reflecting that upside and downside risks are well-balanced.
The central bank released the latest credit ratings reports of three agencies on its website on Sunday.
"We assess Bangladesh's banking sector risk as 'moderate (-),' above the indicative score of 'low (+)' to reflect contingent liabilities from state-owned banks," Moody's said in its latest report.
It also said Bangladesh's state-owned banks account for 30 per cent of the banking system assets and exhibit significantly weaker asset quality, profitability, and capital adequacy than private commercial banks.
On the other hand, S&P assessed a moderate risk related to contingent liabilities from financial institutions, in particular the state-owned commercial banks (SoCBs) sector.
"Although the private sector banks are in adequate shape, significant risks reside in the SoCBs," the S&P explained in its assessment report.
The SoCBs account for about 28 per cent of total banking sector assets and the sector's nonperforming loans had reached about a quarter of total loans as of 2017, according to the S&P.
"Although the government has begun to recapitalise some of the SoCBs, in our view, the sector remains undercapitalised and we expect it to continue to require budgetary support from the government," it noted.
Fitch Ratings also said the banking sector's health and governance standards are generally weak, particularly in public-sector banks.
It also said the official non-performing loan ratio is high at 10.1 per cent in June 2017, while the capital-to-risk weighted-asset ratio (CRAR) is low at 10.9 per cent.
"The CRAR for the six state-owned commercial banks is well below the 10 per cent regulatory minimum," it noted.
At the same time, the risk that the country will need to provide considerable additional support to the banking sector is mitigated by the small size of private credit, at 37 per cent of GDP (gross domestic product).
Currently, 57 scheduled banks are running their business across the country.
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