Weak profits, structural challenges on the horizon for Bangladeshi banks

Weak lending standards and foreclosure laws will continue to drag down asset quality.

Banks in Bangladesh will continue to face weak profitability and weak asset quality in 2024.

Although credit growth is strong, at 11% to 13% expected, weak lending standards and foreclosure laws will continue to drag down banks’ asset quality.

Costs are also expected to rise as the central bank tries to rear back the high inflation. This could increase the debt repayment burden for borrowers, who will have to face higher interest rates along with tightening liquidity.

“Bangladesh's banking industry faces structural asset-quality challenges from weak lending standards and foreclosure law,” said primary credit analyst Shinoy Varghese, adding that state-owned banks continue to hold substantial amounts of weak assets.

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“Ongoing macroeconomic challenges due to inflation, depreciation in the Bangladeshi taka against the U.S. dollar, and import restrictions could lower corporate borrowers' creditworthiness,” he added.

Structural challenges remain a key issue for local banks.

“Bangladesh's banking industry will face structural challenges from high credit risks, the fragmented nature of the system, weak governance at some banks, weak liquidity of some Islamic banks and the low capitalization of state-owned banks,” Varghese warned.