Moody's Investors Service has changed Social Islami Bank PLC's (SIBP) rating outlook to stable from negative as it expects the lender's funding and liquidity to remain stable over the next 12 to 18 months.

"Depositor confidence is returning in the bank as reflected by the continued deposit growth in the June and September 2023 quarters, amid tight liquidity conditions in Bangladesh," said the global ratings agency in a statement yesterday.

It said SIBP's foreign currency liquidity has improved, supported by the strong inflow of remittances from overseas Bangladeshis.

The bank's deposit base has also become more granular, driven by the increase in retail deposits, which will reduce the likelihood of large depositor outflows.

Nonetheless, the bank remains vulnerable because of its very weak liquidity buffers, Moody's said.

As of September 30, liquid assets as a percentage of total assets were low at 8.2 percent. In addition, 80 percent of the government securities holdings were encumbered as collateral for borrowings from the central bank to enable the bank to meet the minimum regulatory cash reserve and statutory liquidity ratios.

"This limits SIBP's access to immediate funding that requires collateral."

According to the statement, the bank's solvency metrics have remained broadly stable over the past one year.

As of December, its non-performing loans (NPL) ratio declined moderately to 4.6 percent from 4.7 percent a year earlier.

The Common Equity Tier 1, a component of Tier 1 capital that is primarily common stock held by a bank or other financial institution, increased to 7.1 percent from 7 percent over the same period.

In the nine months to September, the annualised return on assets was stable at 0.4 percent compared to the same period a year earlier.

However, the bank remains susceptible to large defaults because of its single-borrower concentration and modest provision coverage, Moody's said.

"The bank capitalisation is weak because of its low profitability, driven by high funding costs."