Moody's downgrades Pakistan's banking system from stable to negative

Published February 11, 2019
Moody's points out that Pakistan's banks face the risk of macroeconomic contagion through a range of channels. — File
Moody's points out that Pakistan's banks face the risk of macroeconomic contagion through a range of channels. — File

Moody's Investors Service has changed its outlook for the banking system in Pakistan from stable to negative, the company announced in a press release on Monday.

"Over the next 12-18 months, banks in Pakistan will see their credit profiles challenged by their high exposure to the country's low-rated sovereign debt and a slowing economy," says Constantinos Kypreos, a senior vice-president at Moody's.

Read: Mini-budget measures not enough to curb fiscal deficit: Moody’s

Moody's says that the banks' operating conditions will be difficult, with Pakistan's real GDP growth slowing to 4.3% in the fiscal year ending June 2019, down from 5.8% in 2018.

The rupee has depreciated 30% versus the US dollar, interest rates rose by 450 basis points between December 2017 and February 2019, and inflation is rising; all factors which affect business and consumer confidence and the private sector's debt repayment capacities, the company adds.

Moody's also points out that Pakistan's banks face the risk of macroeconomic contagion through a range of channels, including:

1- their large holdings of government securities, which caps their credit profiles to the sovereign, and

2- from the authorities' weakening capacity to support the banks in case of need, as evidenced by the negative outlook on the sovereign rating.

"On a more positive note, the banks will continue to benefit from stable customer deposits and high liquidity," adds Kypreos.

The negative outlook is based on Moody's assessment of six drivers: operating environment (deteriorating); asset risk (deteriorating), capital (stable); profitability and efficiency (stable); funding and liquidity (stable); and government support (deteriorating).

Moody's rates the five largest banks in Pakistan by assets. Together, these banks account for around 50% of system deposits.

Now you can follow Dawn Business on Twitter, LinkedIn, Instagram and Facebook for insights on business, finance and tech from Pakistan and across the world.

Opinion

Editorial

A call for bloodshed
30 Nov, 2022

A call for bloodshed

The state has wasted precious time by not consolidating its success in pushing TTP out of its strongholds in the north.
Missing childhoods
30 Nov, 2022

Missing childhoods

THE fact is that despite some legal efforts to end the curse of child marriage taking place in Pakistan under the...
Unemployment concerns
30 Nov, 2022

Unemployment concerns

THE ILO finding that labour market recovery from the impact of the Covid-19 pandemic in Pakistan, as in many other...
Back to politics
Updated 29 Nov, 2022

Back to politics

PDM and PTI must realise that neither will get what they want if they keep fighting bitterly at every turn.
Election delay
29 Nov, 2022

Election delay

OF recent, leaders from the ruling PML-N have been dropping hints about a possible delay in general elections after...
Sugar woes
29 Nov, 2022

Sugar woes

IT’S that time of year again when cane growers get anxious over the delay in the commencement of the new sugar...