Bangladeshi banks are set to face continued weak profitability into 2025, despite an anticipated slowdown in credit growth that may ease the industry’s current liquidity pressures, according to an analyst from S&P.

As the central bank seeks to curb inflation, interest rates are expected to remain high throughout 2025, which could further slow loan growth, explained Varghese in S&P’s 2025 Country-By-Country outlook.

Asset quality will remain a major challenge for banks in Bangladesh, exacerbated by weak lending standards and inadequate foreclosure laws. Varghese projects that the non-performing loan (NPL) ratio for the banking system will rise to around 14% in 2025.

However, the expiry of forbearance measures in September 2024 will likely increase the NPL ratio, but it will also enhance transparency in line with international standards.

Additionally, the Prompt Corrective Action framework, set to take effect on 31 March 2025, will require banks to place greater focus on capital adequacy, stressed assets, and corporate governance. The proposed merger of five banks is expected to help address the overcapacity issues that currently plague the sector.

In conclusion, while the Bangladeshi banking sector faces continued challenges, these developments are aimed at improving the overall health and transparency of the industry in the medium term.