“Moody’s Revises Pakistan’s Banking Sector Outlook from Negative to Stable” – Business

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Moody’s Investors Service upgraded Pakistan’s banking sector outlook from “negative” to “stable” on Thursday, citing solid profitability, stable funding, and liquidity. The agency stated that these factors provide a sufficient buffer to withstand the country’s economic challenges and political turmoil.

The report acknowledged that economic and fiscal pressures in Pakistan were easing, with forecasted growth of 2% in 2024 and a decrease in inflation from 29% to 23%. However, the report highlighted the banking sector’s high exposure to government securities, which account for around half of total banking assets.

Despite weak macroeconomic conditions, high government liquidity risk, and external vulnerabilities, the report mentioned a modest economic recovery due to the aftermath of the 2022 floods and low base effects. It noted that high-interest rates and inflation would restrict private sector spending and investment, with banks primarily financing the government’s fiscal deficits.

Moody’s report also pointed out that problem loans are expected to stabilize at around 9% of gross loans, and capital levels in Pakistani banks remain stable. Profitability is projected to gradually decline to normal levels, with interest revenue expected to moderate in 2024.

The report highlighted stable funding and liquidity as strengths for Pakistan’s banking sector, with a rise in interest-bearing deposits due to high-interest rates. Moody’s also downgraded the banking sector outlook for several European countries due to low economic growth and high borrowing costs.

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