” Moody’s upgrades Pakistan’s banking sector outlook to ‘stable’ ” | GNN INFO

WEB DESK: Moody’s has revised the outlook of Pakistan’s banking sector, upgrading it from ‘negative’ to ‘stable’.

This positive shift is attributed to the alleviation of macro-challenges and fiscal pressures, as outlined in Moody’s recent report.

The credit rating agency highlighted the profitability and stable funding of banks, acting as a solid defence against the nation’s macroeconomic challenges and political uncertainties.

Looking ahead, the latest report projects a modest 2 per cent growth for the Pakistani economy in 2024. Additionally, it anticipates a decrease in inflation from 29 per cent to approximately 23 per cent compared to the previous year.

However, the report also sounded a note of caution, highlighting that persistently high interest rates and inflation would continue to impede private-sector spending and investment.

Moody’s pointed out that Pakistani banks are mainly financing the government’s fiscal deficits, constraining their ability to lend to the real economy.

Despite initiatives to enhance financial inclusion and support key sectors, the overall lending landscape is expected to remain restricted.

Moody’s drew attention to the significant exposure of Pakistani banks to the government through substantial holdings of government securities, constituting roughly half of total banking assets. This linkage exposes their credit strength to the sovereign’s performance.

Moody’s also underscored that external pressures, coupled with a challenging operating environment, may slightly impact the performance of Pakistani banks’ loan portfolios.

Nevertheless, the rating agency anticipates the banking sector’s profitability to stay robust, supported by wide net interest margins.

It does, however, predict a potential decline in profitability from the peaks of 2023 due to subdued business growth, increased funding costs, and elevated taxes.

Looking forward, Moody’s outlined that Pakistan’s rating could see an upgrade if the government successfully addresses external and liquidity risks.

The report expects the capital ratios of Pakistani banks to remain stable, buoyed by strong earnings despite high dividend payouts.

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