Flash Report /
Bangladesh

BRAC retains Moody’s B1 rating, but others couldn’t

    IDLC Securities
    24 November 2019
    Published byIDLC Securities

    On 21 November 2019, Moody’s revisited its rating of eight Bangladesh Bank. Moody's has downgraded the ratings of five and affirmed the ratings of three Bangladesh banks. This downgrade was driven by Moody’s expectation of weak credit conditions driven by poor underwriting standards and high corporate concentration. Four banks (BRAC, CITYBA, EBL, and DUBA) in our coverage are rated by Moody’s. Only BRAC among all banks is rated B1, which is equivalent to the country’s sovereign rating. 

    BRAC retains a B1 rating… BRAC’s strength in the small and medium enterprise (SME) segment has led to superior asset quality and profitability compared to other banks in Bangladesh. Besides, BRAC is less vulnerable to asset risks arising from corporate credit exposures because of its lower exposure in the corporate segment. Considering all these, Moody’s investor service maintained its B1 rating for BRAC Bank. 

    However, macro profile downgraded to “Weak minus (-)"… Moody's has downgraded Bangladesh's Macro Profile to "Weak -" from "Weak", driven by a negative one-notch adjustment to credit conditions. Moody’s expect regulatory forbearance (eased loan classification guideline, one-time rescheduled policy with relaxed terms, etc) in response to credit deterioration will further mask asset risk and slow recovery process. This credit condition deterioration will degrade the asset quality and profitability of banks in Bangladesh. Hence, banks with high levels of problem loans (NPL + rescheduled + stay order loans) and high corporate concentrated, will be vulnerable to the rising asset risks.

    Future ratings can be impacted if credit quality deteriorates. In the recent ratings, BRAC and CITYBA were not downgraded considering their current fundamentals. However, any deterioration in asset quality might impact both banks' rating negatively, hence the rating outlook for both is negative. 

    We reiterate our BUY rating on BRAC. Our 2019f TP of BDT 82.6 (based on 17.0x P/E and 2.4x P/B on 2020f) implies an ETR of 37%, suggesting its trading cheap compared to its fundamentals. We favor BRAC in Bangladesh on account of its profitable operations denoted by high ROE, balance sheet strength, lower funding cost advantage and mobile money prospects (bKash). Therefore, we reiterate our BUY rating.

    Rating Summary
    Bank Name

    New Rating

    Old Rating

    Comment

    Outlook - New

    Outlook - old

    BRAC BD

    B1

    B1

    No change

    Negative

    Stable

    CITYBA BD

    B2

    B2

    No change

    Negative

    Stable

    DUBA BD

    B2

    B1

    Downgraded

    Stable

    Stable

    EBL BD

    B2

    B1

    Downgraded

    Stable

    Stable

    NCCB BD

    B2

    B2

    No change

    Negative

    Stable

    ALARAB BD

    B3

    B2

    Downgraded

    Negative

    Stable

    MERBNK BD

    B3

    B2

    Downgraded

    Negative

    Stable

    SOCIN BD

    B3

    B2

    Downgraded

    Negative

    Stable

    Source: Moody's