Moody’s
downgrades long-term
ratings of five Pakistani banks
Moody’s
Investors Service has downgraded the long-term deposit ratings of five
Pakistani banks to Caa3 from Caa1.
According to
Moody’s, the five banks to be downgraded on deposit rating include Allied Bank
Limited (ABL), Habib Bank Ltd (HBL), MCB Bank Limited (MCB), National Bank of
Pakistan (NBP) and United Bank Ltd (UBL).
Along with
downgrading their long-term deposit ratings, Moody’s Investors Service has also
downgraded the five banks’ long-term foreign currency Counterparty Risk Ratings
(CRRs) to Caa3 from Caa1.
As part of the
same action, the rating agency lowered the banks’ Baseline Credit Assessments
(BCAs) to Caa3 from Caa1, and as a result, also downgraded their local currency
long-term CRRs to Caa2 from B3 and their long-term Counterparty Risk
Assessments to Caa2(cr) from B3(cr).
Moody’s said
that the downgrading of banks follows its decision to downgrade the government
of Pakistan’s credit rating to Caa3 from Caa1.
The development
comes at a time when inflation in Pakistan was seen at historical high of
31.5% in January.
In addition, the
hike in State Bank of Pakistan’s benchmark policy rate at 20%, has further
weakened the capacity of borrowers to repay loans taken from banks.
The situation
could lead to default of large number of borrowers, increasing in
non-performing loans (NPLs) and bad loans, likely to hit bank earnings.
Presently, Pakistani government stands to be the single largest borrower, having taken 85% of total deposits in loans.