Will bangladesh also become bankrupt like Pakistan?
Moody's Investors Service has reduced the rating of Bangladesh's banking sector from weak to negative. The main reason for this change is the decline in customer confidence, limited transparency. In addition, moody's has changed the banking system's reach from "stable" to "negative", citing rising inflation, political instability and deteriorating economic conditions.
Main concerns of the report:
Rising non-performing loan (NPA) rates
Slow economic growth and rising inflation
Political and social instability
Foreign exchange crisis and increase in interest rates
Bangladesh's economic condition and decline in GDP growth
According to moody's, Bangladesh's GDP growth rate is likely to decline to 4.5% in the financial year 2025, from 5.8% last year. There are many reasons behind this. Such as:
Sharp rise in inflation rate: likely to be 9.8% in 2025
Rise in interest rates: bangladesh bank raised policy rates from 6% to 10% in 15 months
Reduction in foreign investment: Due to global uncertainty and political instability
Reasons for banking sector slowdown: The main reason for the slowdown in the banking sector is the rising NPA (non-performing loans). As of september 2024, the systemwide NPA ratio increased from 9% to 17%.
Impact on the banking system
According to moody's, Bangladesh's state-owned banks are at the highest risk. As of september 2024, the average capital-to-risk-weighted-assets ratio of state-owned banks was -2.5%, which is much lower than the 9.4% of private banks and also below the regulatory minimum limit.
Bangladesh bank policies and government response
Bangladesh bank has taken several steps to control inflation, including increasing interest rates. However, experts believe that this may slow down the loan growth of the banking sector.
Analysts believe that bangladesh needs to accelerate banking reforms and increase transparency. Actually, Bangladesh's economy can remain strong if-
The government gives priority to banking reforms., strict rules are implemented to control NPAs, and banking transparency and financial monitoring are promoted. Let us tell you that if reforms are made, the banking system can be stable. On the other hand, if the situation worsens, foreign investment will be affected and the economic recession may deepen.
click and follow Indiaherald WhatsApp channel