Bangladesh’s new foreign direct investment (FDI) declined for the second consecutive quarter, reflecting growing investor caution amid weaknesses in the banking sector, rising non-performing loans and concerns over the country’s credit ratings.

According to the latest Bangladesh Bank data, fresh foreign capital inflows fell 4.77% year-on-year to $77.42 million in April-June 2026, down from $81.3 million in the same period last year.

The decline followed a sharp 70.34% year-on-year fall in new FDI during the January-March quarter, indicating continued challenges in attracting new foreign investors.

Economists say Bangladesh’s credit ratings play an important role in foreign investors’ assessment of investment risks. Repeated downgrades in recent years, alongside financial weaknesses in the banking sector, have weighed on investor confidence and made foreign companies more cautious about financing new projects.

Despite the decline in fresh capital, net FDI increased by nearly 12% year-on-year to $346.94 million in April-June, compared with $307.62 million a year earlier. However, net FDI fell 22% from the previous quarter.

The increase was largely driven by the reinvestment of profits by foreign companies already operating in Bangladesh, rather than the arrival of new investors.

Reinvested earnings rose to $269.1 million during the April-June quarter, up from $168.2 million in the same period last year.

Meanwhile, net intercompany loans recorded a sharp decline. Net inflows under this category stood at just $8.61 million in April-June, down 67.04% from $26.13 million in the previous quarter and 85.17% from $58.08 million a year earlier.

The banking sector’s deteriorating financial health has added to concerns over Bangladesh’s investment climate.

According to World Bank data cited in the report, the country’s non-performing loan ratio reached 33.2% at the end of June 2026. The banking sector’s overall capital adequacy ratio also fell to negative 2.6% at the end of December 2025, far below the regulatory minimum of 10%.

Weak revenue collection, pressure on foreign exchange reserves and persistent banking sector problems have also posed challenges for the country’s sovereign credit ratings.

In September, Moody’s maintained Bangladesh’s credit rating at B2 with a stable outlook. S&P and Fitch retained the country’s rating at B+ but kept their outlooks negative.

Economists and market observers warn that continued financial sector vulnerabilities and investor uncertainty could make it more difficult for Bangladesh to attract fresh foreign capital.

They say restoring confidence, strengthening banks and ensuring greater financial stability will be crucial to reversing the decline in new foreign investment.