Moody’s changes outlook of five banks to stable

KARACHI: Moody’s on Tuesday changed the outlook of five Pakistani banks to stable, a press release issued by the rating agency showed.

The outlook on all five Pakistani banks’ long-term local currency deposit ratings was changed to stable as a result of the change in the sovereign rating outlook to stable, said the press release.

Moody’s confirmed B3 long-term local-currency and Caa1 foreign-currency deposit ratings of five Pakistani banks: Allied Bank Ltd, Habib Bank Ltd (HBL), MCB Bank Ltd, National Bank of Pakistan (NBP) and United Bank Ltd.

“The stable outlook 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,” the press release added.

The outlook on all Pakistani banks’ long-term local currency deposit ratings has changed to stable from ratings under review. This rating action concludes the review initiated on May 19, 2020.

“Today’s rating actions follow Moody’s decision to confirm the government of Pakistan’s B3 issuer and senior unsecured ratings on August 8, 2020,” said Moody’s.

The agency’s decision to confirm Pakistan’s B3 government bond ratings with a stable outlook, also results in the stabilisation of Moody’s view of the government’s capacity to support banks in case of need.

The local-currency deposit ratings of two rated banks, NBP and HBL, incorporate one notch of support uplift from their caa1 BCAs (Baseline Credit Assessments).

Discussing the factors that could lead to an upgrade or downgrade of ratings, Moody’s said the improvements in the operating environment and in the sovereign’s credit risk profile, combined with improvements in banks’ solvency metrics (profitability, asset quality and capital), could place upward rating pressures.

Conversely, downward pressure on banks’ ratings would develop following a downgrade of the sovereign rating, reflecting the high inter-linkages between the banks’ credit profile and that of the government, and signaling a reduction in the government’s capacity to extend financial support to banks in case of need.

Downward pressure on the BCAs of individual banks could also develop from a greater-than-expected deterioration in operating conditions from the spread of coronavirus, weakening their asset quality, profitability, and capital adequacy, it added.