ISLAMABAD: Global ratings agency Moody’s Investors Service stated that Pakistan’s banking system would have a stable outlook for the next 12-18 months due to robust funding and liquidity and close links with the sovereign underpin.
“The sovereign credit profile has improved in recent months, benefiting the banks through their high exposure to government securities, which account for around 40 percent of their assets,” said Moody’s Senior Vice President, Constantinos Kypreos.
Moody’s stated that in terms of operating environment, economic activity in Pakistan would also be supported by ongoing infrastructure projects and improvements in power generation and domestic security. In addition, terms of trade gains and the rupee depreciation will likely raise private investment from low levels.
Kypreos further said, “Operating conditions for Pakistan banks, although gradually improving, remain difficult amid tight monetary conditions with the policy rate at 13.25 percent and large government borrowing needs crowding out funding for the private sector.”
Robust funding and liquidity and close links with the sovereign underpin our stable outlook for the Pakistan banking system over the next 12-18 months. https://t.co/AOeglSia7s pic.twitter.com/56bbnujueh
— Moody’s Investors Service (@MoodysInvSvc) February 6, 2020
While economic growth will still remain subdued, the exchange rate has stabilised since June last year and markets expect the State Bank of Pakistan to lower policy rates over the next few years.
Stable customers deposits and high liquidity also remain key strengths, providing banks with ample low-cost funding. Capital levels will remain broadly stable, but Moody’s considers these modest relative to peers. Profits will increase slightly but remain below historical levels.
Moody’s expects the government will remain willing to support at least the systematically important banks in case of need, but its ability to do so is limited by fiscal challenges reflected by its B3 rating.
Read more: Moody’s raises Pakistan’s economic outlook to stable
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