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Rating Action:

Moody's affirms two Bangladesh banks' long-term ratings

21 Dec 2017

Singapore, December 21, 2017 -- Moody's Investors Service has affirmed the long-term ratings of the two banks that it rates in Bangladesh (Ba3 stable). The affected banks are: (1) Eastern Bank Limited, and (2) The City Bank Limited.

In particular, Moody's has affirmed the baseline credit assessments (BCAs) and Adjusted BCAs of the two banks at b1. And, Moody's has affirmed the counterparty risk assessments (CRAs) of the two banks at Ba3(cr)/NP(cr).

The outlook on the ratings of the two banks, where applicable, are maintained at stable.

At the same time, Moody's has changed Bangladesh's Macro Profile to "Weak" from "Weak +". The lower Macro Profile was driven by Moody's lowering of Bangladesh's institutional strength score to "very low +" from "low". The "Weak" Macro Profile also captures some inherent weaknesses in the structure of Bangladesh's banking industry.

The full list of ratings and assessments affected by this rating action can be found at the end of this press release.

RATINGS RATIONALE

RATIONALE BEHIND THE CHANGE IN THE MACRO PROFILE

Moody's has changed Bangladesh's Macro Profile to "Weak" from "Weak +" to account for a lower institutional strength score, as well as some structural weaknesses in Bangladesh's banking industry.

The institutional strength score has been lowered to "very low +" from "low". The institutional strength of very low + reflects Bangladesh's positioning according to the World Bank's Worldwide Governance Indicators. In particular, Bangladesh ranks in the bottom decile among Moody's-rated countries for both government effectiveness and control of corruption.

Moody's also believes that the "Weak" Macro Profile more appropriately reflects some structural weaknesses in the Bangladesh banking industry. The structure of Bangladesh's banking industry is very fragmented relative to the corporate sector, which results in the banks facing a high concentration risk. In addition, several non-banking corporates own meaningful stakes in the banks, which increases the risk of corporate governance issues.

Bangladesh's lower Macro Profile has had no impact on the BCAs of the two Bangladesh banks that Moody's rates.

AFFIRMATION OF THE BANKS' BCAs, ADJUSTED BCAs, SUPPORTED RATINGS AND CRAs

Moody's has affirmed the b1 BCAs and Adjusted BCAs of the two banks. Moody's has also affirmed the local currency deposit ratings for the two banks at Ba3, and the foreign currency deposit ratings at B1.

For Eastern Bank Limited, its b1 BCA and adjusted BCA were affirmed on Moody's expectation that its capital and profitability will remain stable. Moody's affirmation also factors in the bank's strong funding franchise, and Moody's expectation that the liquidity profile of the bank will improve. Moody's says that while the bank should see some deterioration in its asset quality over the next 12 months, its asset quality profile should stay consistent with its BCA of b1.

For The City Bank Limited, Moody's affirmed its b1 BCA and adjusted BCA on Moody's expectation that its asset quality will improve from current levels, while profitability and capital levels remain stable. In addition, the bank's funding franchise remains a key credit strength.

Moody's has also factored in a moderate level of systemic support in the two banks' ratings. This approach is consistent with their 2%-3% market share of system assets. This level of systemic support leads to a one notch uplift in their local currency deposit ratings to Ba3. At the same time, the foreign currency deposit ratings remain at B1, because Bangladesh's country ceiling for foreign currency deposits is at B1.

Moody's affirmed the Counterparty Risk Assessments of the two banks because of the respective affirmation of these banks' Adjusted BCAs.

WHAT COULD MOVE THE RATINGS UP

Eastern Bank Limited

The BCA could be upgraded if there is a significant improvement in the bank's asset quality and capital metrics.

The local currency deposit rating could be upgraded if the bank's BCA is upgraded and Bangladesh's sovereign rating is upgraded.

The foreign currency deposit rating could be upgraded if Bangladesh's country ceiling on foreign currency deposits is upgraded.

The City Bank Limited

The BCA could be upgraded if there is a significant improvement in the bank's asset quality and capital metrics.

The local currency deposit rating could be upgraded if the bank's BCA is upgraded and Bangladesh's sovereign rating is upgraded.

The foreign currency deposit rating could be upgraded if Bangladesh's country ceiling on foreign currency deposits is upgraded.

WHAT COULD MOVE THE RATINGS DOWN

Eastern Bank Limited

The BCA could be downgraded if there is a significant deterioration in the bank's asset quality. There could also be downward pressure on the BCA if the bank pursues a more aggressive liquidity management strategy.

The local currency deposit rating could be downgraded if the bank's BCA is downgraded.

The foreign currency deposit rating could be downgraded if Bangladesh's country ceiling for foreign currency deposits is downgraded.

The City Bank Limited

The BCA could be downgraded if there is a significant deterioration in the bank's asset quality.

The local currency deposit rating could be downgraded if the bank's BCA is downgraded.

The foreign currency deposit rating could be downgraded if Bangladesh's country ceiling on foreign currency deposits is downgraded.

The principal methodology used in these ratings was Banks published in September 2017. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

Headquartered in Dhaka, Eastern Bank Limited's consolidated assets totaled BDT206 billion (approximately $2.6 billion) at 31 December 2016.

Headquartered in Dhaka, The City Bank Limited's consolidated assets totaled BDT253 billion (approximately $3.2 billion) at 31 December 2016.

A summary of Eastern Bank's ratings are as follows:

- Local currency long-term bank deposit rating affirmed at Ba3; foreign currency long-term bank deposit rating affirmed at B1

- Local currency and foreign currency short-term bank deposit ratings affirmed at NP

- Long term issuer ratings affirmed at Ba3

- Short-term issuer ratings affirmed at NP

- BCA and adjusted BCA affirmed at b1

- Counterparty risk assessment affirmed at Ba3(cr)/NP(cr)

- Outlook, where applicable, maintained at stable

A summary of City Bank's ratings are as follows:

- Local currency long-term bank deposit rating affirmed at Ba3; foreign currency long-term bank deposit rating affirmed at B1

- Local currency and foreign currency short-term bank deposit ratings affirmed at NP

- Long-term issuer ratings affirmed at Ba3

- Short-term issuer ratings affirmed at NP

- BCA and adjusted BCA affirmed at b1

- Counterparty risk assessment affirmed at Ba3(cr)/NP(cr)

- Outlook, where applicable, maintained at stable

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Srikanth Vadlamani
VP - Senior Credit Officer
Financial Institutions Group
Moody's Investors Service Singapore Pte. Ltd.
50 Raffles Place #23-06
Singapore Land Tower
Singapore 48623
Singapore
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077

Gene Fang
Associate Managing Director
Financial Institutions Group
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077

Releasing Office:
Moody's Investors Service Singapore Pte. Ltd.
50 Raffles Place #23-06
Singapore Land Tower
Singapore 48623
Singapore
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077

No Related Data.
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