Moody's upgrades outlook of Pakistan's banking sector from 'negative' to 'stable'

Moody’s Investor Services has upgraded the outlook of Pakistan’s banking sector from negative to ‘stable’ as the solid probability and stable funding eased the country’s fiscal pressure. 

The report issued by the investor services on Thursday stated: “The banks’ solid profitability and stable funding and liquidity provide an adequate buffer to withstand the country’s macroeconomic challenges and political turmoil.”

“We forecast the Pakistani economy will return to modest growth of 2% in 2024 after subdued activities in 2023.” Moody’s also predicted a decline in the inflation rate to 23% from 29%.

The report added that the high interest and inflation will continue to curb private-sector spending and investment.

Moody’s noted that Pakistani banks remained highly exposed to the government via large holding government securities which is equivalent to around half of total banking assets.

Furthermore, the rating agency predicted that the banking sector’s profitability will remain strong because of wide net interest margin (NIMs), but decline from 2023 peaks.

Moody’s increased rating in same Caa3 category on behalf of credit in the five largest banks i.e. National Bank of Pakistan (NBP), Habib Bank Limited (HBL), United Bank Limited (UBL), Muslim Commercial Bank (MCB) and Allied Bank Limited (ABL).

It said, “Banks’ stable deposit funding will continue to support financial stability.”