Moody’s upgrades Pakistan’s banking sector outlook from negative to ‘stable’
Moody’s Investors Service (Moody’s) on Thursday upgraded the outlook of Pakistan’s banking sector to ‘stable’ from ‘negative’ as macro challenges and fiscal pressures ease.
“The banks’ solid profitability and stable funding and liquidity provide an adequate buffer to withstand the country’s macroeconomic challenges and political turmoil,” read the report.
“We forecast the Pakistani economy will return to modest growth of 2% in 2024 after subdued activity in 2023, and inflation to fall to around 23% from 29% last year,” it said.
“However, high interest rates and inflation will continue to curb private-sector spending and investment. Furthermore, banks are financing the sovereign’s wide fiscal deficits, leaving little space to lend to the real economy. Initiatives to deepen financial inclusion and assistance for key sectors will only partly support credit demand,” it said.
Moody’s noted that Pakistani banks remain highly exposed to the government via large holdings of government securities that amount to around half of total banking assets, which links their credit strength to that of the sovereign.
