Nine Bangladesh Banks in ‘Red Zone’ as Financial Health Deteriorates

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A recent report from Bangladesh Bank’s Financial Stability Department has identified nine banks, including prominent ones like AB Bank and National Bank, in the ‘red zone,’ indicating significant financial vulnerabilities. The classification comes from the latest edition of the “Banks Health Index and HEAT Map,” which evaluates banks’ financial health using the international CAMELS rating system. This system considers factors such as capital adequacy, asset quality, management, earnings, liquidity, and sensitivity to market risk.

Additionally, the report highlights that 29 banks fall within the ‘yellow zone,’ signaling that their financial health is between stable and fragile and requiring close supervisory attention. Notably, this category includes two state-owned commercial banks, namely Bangladesh Development Bank and Sonali Bank, alongside conventional private banks and Shariah-based banks.

While 16 banks experienced deteriorating health between December 2020 and June 2023, there are ongoing discussions regarding potential mergers and acquisitions to address weaknesses within the sector. Concerns over bad loans, totaling upwards of Tk 4 lakh crore, have been raised, with calls for stringent action from the central bank against loan defaulters and weak institutions.

This assessment arrives at a critical juncture as Bangladesh grapples with the financial stability of its banking sector, underscoring the need for proactive measures to address underlying vulnerabilities and ensure long-term resilience.