Moody’s Ratings has warned that Bangladesh’s banking sector is among the most vulnerable in the Asia-Pacific region to the United States’ sweeping tariff increases, citing the country’s heavy reliance on garment exports and fragile financial buffers as key weaknesses.
In a report released on Monday (7 April), the global credit rating agency stated that banks in Bangladesh, Vietnam and Thailand would be hit the hardest, as their economies are significantly more dependent on exports to the US than others in the region.
“The higher tariffs are more negative, on a relative basis, for banks in Vietnam (Ba2 stable), Thailand (Baa1 stable) and Bangladesh (B2 negative) because of their economies’ higher reliance on exports to the US compared with other economies in the region,” the report stated.
“In these three countries, a moderation in exports to the US will hurt economic growth, straining loan growth for banks and hurting loan quality,” Moody’s added.
For Bangladesh, the tariff shock compounds an already deteriorating economic climate and systemic fragilities in the banking sector, including poor asset quality and thin capital buffers.
The United States has raised average tariffs on Bangladeshi goods to 37%—more than triple the previous rate of 11%. The blow will fall squarely on the country’s readymade garments (RMG) sector, which comprises over 85% of total exports and is already contending with supply chain disruptions and labour unrest stemming from last year’s political turbulence.
Moody’s estimates that approximately 20% of the banking sector’s exposure is linked to the garment industry, rendering it particularly susceptible to further credit deterioration.
“US tariffs are now very high for exports from Vietnam, Thailand and Bangladesh. The first two are more dependent on US exports in terms of domestic value added in gross exports. Much higher US tariffs will lower their economic growth, with the resulting strain trickling down to banks,” the agency said.
“For Bangladesh, higher US tariffs will depress the already weak operating environment for banks amid a slowdown in the country’s economic growth.”
Moody’s warned that the quality of loans in the garment sector is likely to deteriorate further, compounding the strain on a banking system already under a negative outlook. While Bangladeshi banks have relatively low direct exposure to small and medium-sized enterprises—less than 10%, compared to roughly 20% in Thailand and Vietnam—their high concentration in garments introduces a different form of systemic vulnerability.
Among the three most affected banking systems, Bangladesh and Vietnam have the lowest capital and provisioning buffers to absorb a rise in problem loans. Banks in Thailand, although also highly exposed to SMEs, benefit from more robust provisioning frameworks and slightly more diversified economic bases.
In contrast, the impact of the tariff hikes on larger Asia-Pacific economies such as China, India, Japan and South Korea is expected to be moderate. These countries either export less to the US relative to GDP or possess more diversified industrial structures. For instance, in 2024, China’s exports to the US accounted for less than 3% of its GDP. Additionally, major Taiwanese chipmakers have reportedly been exempted from the new tariffs.
Australia, New Zealand, Singapore and the Philippines face the lowest additional tariff rates and are expected to experience limited financial spillovers.
Regionwide, Moody’s anticipates that central banks may respond with interest rate cuts or regulatory relief to cushion the blow for export-facing industries. However, in the case of Bangladesh, such measures may prove insufficient without broader structural reforms.
“The asset quality for RMG and related sectors will deteriorate,” the agency warned, urging urgent policy support and long-term export diversification to safeguard financial stability.
