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Rating Action:

Moody's assigns first-time Ba3 ratings to Dutch-Bangla Bank Limited

30 May 2018

Singapore, May 30, 2018 -- Moody's Investors Service has today assigned a Ba3 local-currency deposit rating and a B1 long-term foreign currency deposit rating to Dutch-Bangla Bank Limited (DBBL), which is based in Bangladesh (Ba3 stable).

Moody's has also assigned Ba3 long-term foreign currency and local-currency issuer ratings, short-term deposit and issuer ratings of Not Prime (NP), a baseline credit assessment (BCA) of b1, adjusted BCA of b1, and counterparty risk (CR) assessment of Ba3(cr)/NP(cr) to the bank.

The ratings outlook is stable.

RATINGS RATIONALE

The Ba3 long-term local currency deposit and long-term local and foreign currency issuer ratings assigned to DBBL are one-notch higher than its BCA of b1, because they incorporate a one-notch uplift to reflect Moody's assumption of moderate systemic support for the bank in case of stress. However, its foreign currency deposit rating is at B1 because Bangladesh's foreign currency deposit ceiling is capped at that level.

DBBL is a scheduled commercial bank originally set up as a joint venture between Bangladesh and the Netherlands. DBBL is a medium sized bank with around a 3% share of system loans and deposits at the end of 2017.

The b1 BCA reflects DBBL's strong and unique funding franchise, good liquidity and strong profitability. At the same time, the BCA also factors in the bank's weak capital, as well as the high concentration risk in its loan portfolio.

DBBL's funding franchise is strong, driven by sustained investments in distribution and technology. The strength of its funding franchise is reflected in its high current and savings account ratio of 71% at 31 December 2017, as well as its cost of funding, which is significantly better than its domestic peers.

This strong funding franchise enhances the quality of the bank's profitability, because revenues from liability products are far less volatile and therefore less risky when compared to revenues from asset side products.

Moody's notes that DBBL's profitability is suppressed to an extent by the investments that the bank is making in its mobile payments business. DBBL is the second largest player in the mobile payments space in Bangladesh by volume of transactions, but this segment of its operations is loss making, because the bank is still investing in its platform. Moody's will not view these investments negatively, if they lead to a further strengthening of DBBL's position in mobile payments.

DBBL also incurs sizeable costs in conducting its corporate social responsibility activities. Nevertheless, these expenses are discretionary in nature and can be cut if its core business profitability is under stress.

The bank's asset quality is in line with domestic banks in Bangladesh, with a gross nonperforming loan ratio of 4.65% at the end of 2017. In addition, the relatively moderate loan growth of the bank compared to domestic peers also points to DBBL's lending being based on more conservative norms.

At the same time, the bank has a high degree of concentration in its loan book, with such concentration at levels that are even higher than the high loan concentration seen in Bangladeshi Banks; with the latter proving to be a structural characteristic. Such a situation is a credit negative.

DBBL's capital also represents a credit weakness. Its reported common equity tier 1 ratio is modest at 9.2% at 31 December 2017. And, the bank's risk-weighted asset density is quite low when compared to domestic peers. Consequently, its capital levels are weaker on a leverage basis.

Moody's assessment of systemic support results in a one-notch uplift to DBBL's ratings to Ba3, a result which is higher than the bank's BCA of b1.

COUNTERPARTY RISK ASSESSMENT

DBBL's CR Assessment is positioned at Ba3(cr)/NP(cr). CR assessments are opinions of how counterparty obligations are likely to be treated if a bank fails and relates to a bank's contractual performance obligations (servicing), derivatives (e.g., swaps), letters of credit, guarantees and liquidity facilities. Senior obligations represented by the CR Assessments will be more likely preserved to limit contagion, minimize losses and avoid disruption of critical functions.

What Could Change the Rating Up/Down

Moody's will consider upgrading DBBL's BCA, if the bank's capital levels significantly improve and the bank is able to reduce the concentration risk in its loan book.

Conversely, the BCA and ratings could be lowered if the bank's asset quality deteriorates.

A summary of DBBL's first-time ratings/inputs as assigned by Moody's is as follows:

- Ba3 local currency long-term deposit ratings; outlook stable, B1 foreign currency long-term deposit ratings; outlook stable

- Ba3 local currency and foreign currency long-term issuer ratings; outlook stable

- b1 BCA and b1 adjusted BCA

- Ba3(cr)/NP(cr) long-term and short-term counterparty risk assessments

- NP local currency and foreign currency short-term deposit ratings

- NP local currency and foreign currency short-term issuer ratings

The principal methodology used in these ratings was Banks published in April 2018. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

Headquartered in Dhaka, Dutch-Bangla Bank Limited's consolidated assets totaled BDT312 billion (approximately $3.8 billion) at 31 December 2017.

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

Graeme Knowd
MD - Banking
Financial Institutions Group
JOURNALISTS: 81 3 5408 4110
Client Service: 81 3 5408 4100

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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