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What does Moody’s downgrade
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Birupaksha Paul, a professor of economics at the State University of New York, said: “It is Moody’s perspective on Bangladesh’s outlook and it contains some elements of truth.
“But it’s not that the interim government has done something damaging which caused the report to emerge. It reflects a continuation of the previous regime’s deterioration of governance and the troubled performance of the financial sector.
“However, the interim government’s vagueness in terms of financial reforms, institutional corrections, and the empowerment of the central bank is also a factor,” he concluded.
Experts said international borrowing costs are also likely to rise, exacerbating the challenges facing businesses already grappling with rising expenses.
Mamun Rashid, chairman of Financial Excellence Ltd, said the impact of this is that LC confirmation charges will become more expensive as banks grow increasingly reluctant towards exposure in Bangladesh.
All private sector credit will undergo more stringent reviews, he added.
Rashid added that cross-border funding into the country, along with any new considerations for funding or exposure, will become costlier and may decline in volume.
“A political roadmap is the primary step to address this.”
Investors and institutions want to know a definitive roadmap, but the tenure of this interim government remains vague, he said.
“Political roadmaps are always critical in the international political economy. Without one, foreign direct investment (FDI) will not materialise. While bilateral or multilateral aid may still come, FDI will not,” he added.
On Monday, Moody’s downgraded Bangladesh’s rating from B1 to B2 as a result of heightened political risks, lower growth forecasts, further deterioration in law and order and weak domestic demand.
A B2 rating signifies obligations that are considered highly speculative and are subject to high credit risk.
The heightened political risks come from the absence of a clear election roadmap, the deterioration of law and order and the nascent reemergence of community-based tensions, the American credit rating agency said in a report.
The report coincides with the conclusion of the first 100 days of the interim government, which came to power after the Awami League government was ousted by a mass uprising.
However, experts opined that the downgrade would have an immediate impact on the banking sector.
“It will have an immediate impact on banks’ international business, especially in export and import. It will affect international borrowing, and the cost of doing business is likely to rise,” said Syed Mahbubur Rahman, managing director and CEO of Mutual Trust Bank.
“The lenders I am talking to for funds will rethink whether to fund me now. Even if we get funding, it will be costlier and the size of the funding may be cut in half.”
Confirmation charges and FDI may also be impacted, he added
“The remedy for this is to address the concerns raised by Moody’s -- political stability, elections, and the law-and-order situation. Moreover, bringing stability to the external accounts and reducing overdue debts in the banking sector is crucial.”
He said that banks’ trade business has already been impacted and this rating downgrade may further raise flags.
“When an agency lowers a country’s rating, the risk factor rises, and approvals get delayed.”

456 officials
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against them in phases, said the official.
UNION BANK
After the Awami League government fell, Bangladesh Bank dissolved the board of directors of Union Bank on August 27.
On November 17, a new board of directors of the bank decided to sack 262 officers and officially cited that it was “to reduce costs”.
According to the board, the sacked officials were hired last February based on a list provided by Alam and no recruitment test was held.
All the sacked officials are trainee assistant officers and trainee assistant cash officers and most hail from different upazilas of Chattogram.
Farid Uddin, chairman of the bank, did not receive a call from The Daily Star yesterday for comment.
Alam is apparently absconding and could not be reached for comments.