ISLAMABAD – Another positive development reported for Pakistan on theeconomic front from Moody’s Investors Service.
Moody’s has stated that robust funding and liquidity and close links withthe sovereign underpin its stable outlook for the Pakistan banking systemover the next 12-18 months.
“The sovereign credit profile has improved in recent months, benefiting thebanks through their high exposure to government securities, which accountfor around 40% of their assets,” says Constantinos Kypreos, a Moody’sSenior Vice President.
In terms of the operating environment, economic activity in Pakistan willalso be supported by ongoing infrastructure projects and improvements inpower generation and domestic security. In addition, terms of trade gainsand the rupee depreciation will likely raise private investment from lowlevels.
“Operating conditions for Pakistan banks, although gradually improving,remain difficult amid tight monetary conditions – with the policy rate at13.25% – and large government borrowing needs crowding out funding for theprivate sector,” adds Kypreos.
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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 thesemodest relative to peers. Profits will increase slightly but remain belowhistorical levels.
Moody’s expects the government will remain willing to support at least thesystematically important banks in case of need, but its ability to do so islimited by fiscal challenges reflected by its B3 rating.
