ISLAMABAD: Moody’s Investors Service on Wednesday affirmed the B3 long-term deposit ratings of five leading Pakistani banks and changed their outlook to negative from stable as a fallout of its last week’s downgrade of Pakistan’s sovereign rating to negative.

These banks are Allied Bank Limited (ABL), Habib Bank Ltd, MCB Bank Limited (MCB), National Bank of Pakistan and United Bank Ltd (UBL). As part of the same rating action, “Moody’s has changed the outlook on the banks’ long-term deposit ratings to negative from stable”, it said in a statement.

The rating agency has also downgraded the long-term foreign currency counterparty risk ratings of ABL, MCB and UBL to B3 from B2. These ratings are now constrained by the government of Pakistan’s foreign currency country ceiling, which was lowered to B3 from B2.

“Today’s rating actions follow Moody’s decision to change the government of Pakistan’s B3 ratings to negative from stable on June 2, 2022, and also lower the country’s local and foreign currency country ceilings to B1 and B3, from Ba3 and B2, respectively,” Moody’s said.

The negative outlook on the sovereign is driven by Pakistan’s heightened external vulnerability risk and uncertainty around the sovereign’s ability to secure additional external financing to meet its needs.

According to the rating agency, the affirmation of the five Pakistani banks’ ratings reflects their stable, deposit-based, funding profiles and adequate liquidity. Around 12 per cent of assets are held as cash and interbank placements and an additional 45pc are invested in government securities, a large proportion of which can be repoed with the central bank in case of need.

Pakistani banks also display resilient profitability, with the 2021 systemwide return on assets at 1pc, while growing financial inclusion and other government initiatives are boosting lending opportunities. These strengths are balanced against the still high asset risks given the vulnerable operating and macro conditions, with the 2021 systemwide non-performing loans (NPLs) at 7.9pc of gross loans; and modest capital buffers, with the 2021 systemwide equity-to-assets ratio at 6.3pc.

Moody’s has downgraded five big Pakistani banks despite the fact that they have earned the highest profits in the year 2021.

Published in Dawn, June 9th, 2022

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