Moody’s Investors Service has downgraded the long-term deposit ratings of five Pakistani commercial banks – Allied Bank Limited (ABL), Habib Bank Limited (HBL), MCB Bank Limited (MCB), National Bank of Pakistan (NBP) and United Bank Limited. Is. (UBL) — B3 to Caa1.
The rating agency has also downgraded the long-term foreign currency counterparty risk ratings (CRRs) of five banks from B3 to Caa1, according to a statement issued by Moody’s on Tuesday.
As part of the same rating action, Moody’s downgraded the Baseline Credit Assessments (BCAs) of ABL, MCB and UBL from B3 to Caa1, and consequently also their local currency long-term CRRs. Downgraded from B2 to B3 and their long-term currency counterparty risk assessments from B2(cr) to B3(cr).
However, the BCAs of NBP and HBL were confirmed at Caa1. “The outlook on all banks’ deposit ratings remains negative.”
The latest rating moves follow Moody’s decision last week to downgrade Pakistan’s credit rating to Caa1 from B3 and maintain a negative outlook.
“Today’s rating actions reflect (1) the Government of Pakistan’s reduced ability to support banks, which has affected banks whose ratings benefit from government support (ie NBP and HBL); (2) ) high credit linkages between banks’ balance sheets and sovereign credit risk, which limit banks’ fundamental credit assessment at the Caa1-rated government level. and (3) Pakistan’s foreign exchange limit to Caa1. reduction, which has affected the foreign currency CRR of all rated banks,” the rating said in the statement.
The downgrade of local currency deposit ratings by NBP and HBL from B3 to Caa1 reflects the government’s reduced ability to support banks when needed.
“This signaled a downgrade of the sovereign’s bond rating from B3 to Caa1, reflecting the country’s deteriorating economic outlook in the wake of devastating floods, increased government liquidity and risks of external vulnerabilities and debt sustainability. Due to high risks, from June 2022.
The floods have exacerbated Pakistan’s liquidity and external debt vulnerabilities and increased social spending needs, while also hurting government revenues. Consequently, the deposit ratings of NBP and HBL do not include further government support improvements.
