Moody's Investors Service, the bond credit rating business of Moody's Corporation, has affirmed the Social Islami Bank Limited's (SIBL) B2 deposit rating with a negative outlook and the Dutch Bangla Bank Limited's (DBBL) B1 deposit rating with a stable outlook.
On Thursday, Moody's affirmed SIBL's B2 long-term local and foreign currency deposit and issuer ratings, and b3 Baseline Credit Assessment (BCA) and Adjusted BCA, adding that the bank's rating outlook remains negative.
SIBL's B2 long-term deposit and issuer ratings are one notch above its b3 BCA, reflecting Moody's expectation of a moderate probability of support from the Bangladesh government (Ba3 stable) for the bank in times of need.
SIBL's capital has declined because of weak profitability and higher risk-weighted assets (RWA) density because of asset quality deterioration. Further, its Common Equity Tier 1 (CET1) capital ratio moderated to 6.4% as of 31 March 2022 from 7.8% a year earlier.
Moody's expects SIBL's capital to remain weaker than other Moody's-rated Bangladeshi banks.
SIBL's weak profitability is driven by its high reliance on costlier time deposits for funding and modest non-interest income. Return on tangible assets was 0.4% in 2021 and 2020, lower than other Moody's-rated Bangladeshi banks' and SIBL's level of 0.5% from 2017 to 2019.
Moody's expects asset risks to remain high for SIBL over the next 12 to 18 months because the bank is exposed to high concentration risks. The bank's provisioning for nonperforming investment was modest at 88% as of the same date.
On the other hand, Moody's affirmed DBBL's B1 long-term local and foreign currency deposit and issuer ratings, and b2 Baseline Credit Assessment (BCA) and Adjusted BCA, changing the bank's rating outlook to stable from negative.
DBBL's B1 long-term deposit and issuer ratings are one notch above its b2 BCA, reflecting Moody's expectation of a moderate probability of support from the Government of Bangladesh (Ba3 stable) for the bank in times of need.
The bank's asset quality will remain modest over the next 12 to 18 months. Although loans under pandemic-related forbearance measures decreased to 22% as of 31 March 2022 from 42% a year earlier, the bank's high concentration in large domestic corporates renders it vulnerable to large defaults.
DBBL's strong funding and liquidity, as reflected by a moderate loans-to-deposits ratio of 79% as of 31 March 2022, supports its credit profile. Further, the bank has strong access to sticky, low-cost current and savings accounts, constituting 68% of customer deposits as of 31 March 2022.
DBBL's capital will moderately improve over the next 12 to 18 months, supported by good internal capital growth because of its higher-than-peer average net interest margin. Tangible common equity (TCE) to risk-weighted assets (RWA) improved to 8.6% as of the end of 2021 from 8.3% a year earlier.