Moody's changes Pakistan's banking system outlook to negative

KARACHI: Moody’s rating agency has changed the outlook of Pakistan’s banking system to negative from stable.

The Moody’s in a report released Monday says, “Over the next 12-18 months, banks in Pakistan will see their credit profiles challenged by their high exposure to the country’s low-rated sovereign debt and a slowing economy.”

The report said that the banks’ operating conditions will be difficult, as GDP growth slowing to 4.3% in the fiscal year ending June 2019, down from 5.8% in 2018.

The agency also observed that Pakistan’s banks face the risk of macroeconomic contagion through a range of channels, including: their large holdings of government securities, which caps their credit profiles to the sovereign, and from the authorities’ weakening capacity to support the banks in case of need.

The report however said, “On a more positive note, the banks will continue to benefit from stable customer deposits and high liquidity.”

The rating agency, weighs the five largest banks in Pakistan by assets. These banks together by assets account for 50 pct of the banking system deposits.