NEW YORK – Moody’s Investors Service on Tuesday downgraded the long-termdeposit ratings of five Pakistani banks – Allied Bank Limited (ABL), HabibBank Ltd. (HBL), MCB Bank Limited (MCB), National Bank of Pakistan (NBP)and United Bank Ltd. (UBL).
The rating agency has also “downgraded the five banks’ long-term foreigncurrency Counterparty Risk Ratings (CRRs) to Caa1 from B3”.
As part of the same rating action, Moody’s lowered the Baseline CreditAssessments (BCAs) of ABL, MCB and UBL to caa1 from b3, and as a resultalso downgraded their local-currency long-term CRRs to B3 from B2 and theirlong-term Counterparty Risk Assessments to B3(cr) from B2(cr). The BCAs ofNBP and HBL were affirmed at caa1. The outlook on all banks’ depositratings remains negative,” read Moody’s official statement.
The development comes days after Moody’s cut the Pakistan’s issuer andsenior unsecured debt ratings to Caa1 from B3, and maintained a negativeoutlook, for first time in seven years.
Moody’s said that the rating actions reflect Pakistani government’s reducedcapacity to support the banks, which has affected the banks whose ratingsbenefit from government support (namely NBP and HBL); the high creditlinkages between the banks’ balance sheets and sovereign credit risk, whichconstrains the banks’ Baseline Credit Assessments at the level of the Caa1rated government; and the lowering of Pakistan’s foreign currency ceilingto Caa1, which has affected the foreign currency CRRs of all rated banks.
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“The reduced capacity of the Pakistani government to support the banks incase of need… is indicated by the downgrade of the sovereign’s bond ratingto Caa1, from B3, which was driven by worsening economic outlook, increasedgovernment liquidity and external vulnerability risks and higher debtsustainability risks, in the aftermath of devastating floods that hit thecountry since June 2022.
“As a result, NBP’s and HBL’s deposit ratings no longer incorporate agovernment support uplift,” it said.
It highlighted that ratting of the banks has been downgraded mainly becauseof “the rated banks’ very large holding of sovereign debt securities, atbetween 7-14 times their Tier 1 capital, which will continue to link theircreditworthiness to that of the government, whose ratings are on negativeoutlook”.
