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Dawn News - 1 month ago

Moody’s upgrades outlook for five banks to ‘stable’

KARACHI: Moody’s Investors Service on Thursday changed the outlook of five leading banks from ‘negative’ to ‘stable’ and affirmed their existing B3 long-term local currency deposit ratings. The banks include Allied Bank Ltd (ABL), Habib Bank Ltd (HBL), MCB Bank Ltd, National Bank of Pakistan (NBP) and United Bank Ltd (UBL), according to an announcement by the New York-based rating agency. The rating actions follow Moody’s decision on Dec 2 to affirm B3 rating for the Government of Pakistan and change the outlook on the sovereign rating to stable from negative and reflect reduced external vulnerability risks and ongoing fiscal reforms. However, the banks’ outlook was changed mainly due to high exposures to the government securities which is almost risk-free and high yielding. “The banks’ rating actions reflect improvements in the operating environment in Pakistan and in the country’s sovereign credit profile, which affect the banks’ given their high government exposures that link their credit profiles to that of the government and the expectation that the government’s capacity to support banks in case of need will not deteriorate,” said the agency. The primary driver of Moody’s decision to change the outlook for the banks to stable is the extensive interconnectedness between their balance sheets and sovereign credit risk, owing to the banks’ high exposures to government securities. The high direct exposure to government credit risk, in addition to the primarily Pakistan focus of their operations, links the banks’ credit profile to that of the government. As a result, the improvements in the operating environment and in the sovereign credit profile have eased pressures on banks as well. The stable outlook assigned to the local currency deposit ratings also reflects Moody’s expectation that the government’s capacity to support banks in case of need will not deteriorate. The agency said this is reflected by the stable outlook on Pakistan’s sovereign B3 bond rating which is driven by reduced external vulnerability risks on the back of policy adjustments and currency flexibility as well as ongoing fiscal reforms that will mitigate risks related to debt sustainability and government liquidity. Moody’s decision to affirm the banks’ ratings reflects their stable deposit-based funding structures, high liquidity buffers and good earnings generating capacity, as well as Pakistan’s high growth potential, said the agency. The agency said further improvements in the operating environment and in the sovereign’s credit risk profile could place upward rating pressures. Moody’s would downgrade the banks’ ratings in the event of a weakening of Pakistan sovereign’s creditworthiness, it said. Additional pressure may arise from a weakening in banks’ baseline credit assessment, driven by asset quality pressures that also affect banks’ capital buffers, it added. Published in Dawn, December 6th, 2019

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