Bangladesh banks' profits to be pressured by high funding costs: Moody's
BANGLADESH banks will be forced to borrow at higher costs as they are likely to face persistent liquidity pressures this year due to high inflation, hurting their net interest margins and profitability, Moody’s Investors Service said on Wednesday (Feb 22).
“Liquidity pressures being faced by Bangladesh banks may not fully abate in 2023 as high inflation is likely to keep a lid on deposit growth while economic uncertainty may lead to reductions in exporters’ earnings, a key contributor of foreign-currency liquidity,” the rating agency’s analysts wrote in a note to clients.
“We expect inflation in Bangladesh to be 7 per cent-8 per cent, higher than pre-pandemic levels of 5.5 per cent-6 per cent,” they said.
Liquidity tightened in 2022 due to a combination of factors including a fall in deposit growth due to high inflation, a dollar shortage and a decrease in remittances.
While the central bank has tried to ease the liquidity crunch through the repo window and inter-bank funding options, the cost of funding has risen “materially” due to higher demand and monetary tightening and “will hurt banks’ net interest margins and their profitability,” the Moody’s analysts said.
“Weak banks with small holdings of government securities that can be pledged for repos can be vulnerable as they may have difficulty obtaining funding from the interbank market or via the central bank’s repo facility,” they added.
Among the domestic banks, Islamic banks are likely to be more at risk than others due to their smaller liquidity buffers and business structure, the rating agency said.
One reason for Islamic banks’ weaker liquidity cushions is because the central bank has more relaxed buffer rules for them to support the sector’s growth, Moody’s said. REUTERS
Share with us your feedback on BT's products and services
