Moody’s Investors Service has affirmed the B3 long-term local-currency deposit ratings of five Pakistani banks and changed the outlook on these ratings to stable from negative.
At the same time, the rating agency has affirmed the banks’ Caa2 foreign-currency deposit ratings and Not- Prime short-term ratings. The banks’ standalone E financial strength ratings corresponding to caa1 baseline credit assessments (BCA) have also been affirmed.
The affected banks are: Allied Bank Limited, Habib Bank Ltd, MCB Bank Limited, National Bank of Pakistan and United Bank Ltd.
The rating actions follow Moody’s decision on July 14 to affirm the Caa1 rating for the Pakistan and change the outlook on the sovereign rating to stable from negative.
The bank rating actions take into account a stabilisation of the government’s risk profile and its capacity to support the banks, and the high underlying inter-linkages between the banks’ standalone credit risk profiles and that of the sovereign, owing to their high lending concentrations to the government and to government related entities.
Rating rationale
The affirmation and outlook change on the five banks’ B3 deposit ratings primarily reflects Moody’s view of a stabilisation of the sovereign’s risk profile and its capacity to support the banks.
Moody’s notes that the government’s implementation of structural reforms agreed with the International Monetary Fund support a gradual shift to a higher growth trajectory and strengthen its capacity to support the banks.
The banks’ B3 deposit ratings incorporate one notch of support from their caa1 standalone BCAs, reflecting Moody’s view of the likelihood that support would be forthcoming for these banks given their systemic importance as the five largest banks in Pakistan, with deposits market shares ranging from 8% to 14%.
The affirmation of the banks’ standalone credit profiles also takes into account both the on-going challenges the five banks are facing in terms of concentrations to sovereign and quasi-sovereign risk and stability provided by their predominately deposit funded profiles and high levels of liquidity.
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