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Moody’s Investors Services on Thursday announced a “stable outlook” for Pakistan’s banking system over the next 12-18 months underpinned by “robust funding and liquidity and close links with the sovereign”.
In a press release, agency said in terms of the operating environment, economic activity in Pakistan would also be supported by the ongoing infrastructure projects as well as by improvements in power generation and domestic security.
Additionally, the terms of trade gains and depreciation of the rupee were “likely” to raise private investment from low levels.
“The sovereign credit profile has improved in recent months, benefiting the banks through their high exposure to government securities, which account for around 40 per cent of their assets,” said Moody’s Senior Vice President Constantinos Kypreos.
Kypreos added that operating conditions for banks in the country, which were “gradually improving”, remain difficult due to the tight monetary conditions and the large government borrowing needs, which he said, crowd out funding for the private sector.
Moody’s noted that while economic growth in Pakistan would “remain subdued”, the exchange rate had stabilised from June of last year, adding that the markets expected 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,” the press release said.
The agency said it expected the government would 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”.
In December of last year, Moody’s upgraded Pakistan’s outlook from ‘negative’ to ‘stable’, reaffirming the country’s rating of B3.