On Tuesday, Moody’s Investors Service confirmed the B3 long term local currency and Caa1 foreign currency deposit ratings of five Pakistani banks.
The banks include United Bank Limited (UBL), Habib Bank Limited (HBL), National Bank of Pakistan (NBP), Allied Bank Limited (ABL), and MCB Bank Limited (MCB).
The published Moody’s report says that the outlook on all long term local currency of Pakistani bank’s deposit rating changed to stable from ratings under the review. Report states, “Moody’s decision to confirm the banks’ ratings follows credit rating agency decision to confirm Pakistan’s B3 sovereign ratings, which signals reduced pressure on Pakistan’s credit profile, indirectly supporting bank ratings, given their high exposures to government credit risk.”
Moreover, Moody’s also said that the decision of the confirmation of B3 government bond ratings of five Pakistani banks with a stable outlook, became out to be alleviated of its view of the capacity of the country’s government in order to support banks of Pakistan in case of need.
According to the report, “The stable outlook [for the banks] balances their stable funding and liquidity positions and Moody’s assumptions that government support will be forthcoming in case of need, against a difficult economic environment and renewed pressure on banks’ asset quality and profitability metrics.”
Downward pressure on the rating of banks will result in a downgrade of the sovereign rating. It would reflect the high interlinkages between the credit profile of the banks and that of the government, and indicating a drop in the government’s capacity to extend financial support to banks in case of need.
Moody’s also said that downward pressure on the Baseline Credit Assessments of the individual banks could develop from the unexpected decline in operating conditions from COVID-19 spread, weakening asset quality, capital adequacy and profitability.