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.

Follow Dawn Business on X, LinkedIn, Instagram and Facebook for insights on business, finance and tech from Pakistan and across the world.

Opinion

Editorial

Sustainable path?
Updated 13 Jun, 2026

Sustainable path?

The FY27 budget is the first clear signal that the government is ready to transition from stabilisation to growth.
Prioritising education
13 Jun, 2026

Prioritising education

THOUGH the improvement in the country’s literacy rate may be slight, as highlighted by the Economic Survey, it ...
Poverty’s rise
13 Jun, 2026

Poverty’s rise

AS attention turns to the government’s plans for the coming fiscal year, one set of figures deserves particular...
A difficult story
Updated 12 Jun, 2026

A difficult story

Unless productivity becomes the dominant target of economic policy, Pakistan will continue to oscillate between crises and fragile recovery.
Rough waters
12 Jun, 2026

Rough waters

AMONGST the key potential triggers for fresh conflict in South Asia is water. The Indian state is behaving in an...
Politicised football
12 Jun, 2026

Politicised football

ALMOST three-and-half years since Lionel Messi led Argentina to FIFA World Cup glory, the latest edition of...