Bangladesh turmoil may slow financial reform, weaken banks, S&P says

NEW DELHI/DHAKA: Political turmoil in Bangladesh is likely to slow planned financial reforms and has already added to weakness in the banking sector, S&P Global Ratings said on Wednesday.

Prime Minister Sheikh Hasina quit and fled to India last week after student-led protests against her spiralled into some of the worst violence since Bangladesh’s 1971 independence from Pakistan, killing 300 people and injuring thousands. An interim government, led by Nobel prize winning economist Muhammad Yunus, has been appointed to plug a power vacuum and hold elections, but the protests have widened to target officials appointed during Hasina's term, including the central bank chief and four deputy governors, who have resigned. A new central bank governor has been appointed.

“We see risk of policy inaction and a potential slowdown in financial reforms,” S&P Global Ratings credit analyst Shinoy Varghese said.Weakness in the banking industry, including a lack of liquidity, thin capital buffers and ailing asset quality, has worsened while the departure of senior central bank officials could delay ongoing structural reforms, the rating agency said.