Web Desk: The global rating agency Moody’s has improved Pakistan’s banking outlook from stable to positive.
“We have changed our outlook on Pakistan’s banking system to positive from stable to reflect the banks’ resilient financial performance as well as improving macroeconomic conditions from very weak levels a year ago,” Moody said in its report.
Additionally, Moody’s projected that the Pakistani economy is expected to grow by 3% in 2025, an increase from 2.5% in 2024 and a recovery from -0.2% in 2023.
“Inflation is also significantly easing, which we estimated at around 8% for 2025 from an average of 23% in 2024.”
Moody’s indicated that the positive outlook for the banking sector reflects the Government of Pakistan’s (Caa2 positive) positive outlook as well.
They noted that Pakistani banks have significant exposure to the sovereign, with large holdings of government securities making up about half of total banking assets.
However, they highlighted that Pakistan’s long-term debt sustainability remains a critical risk due to its persistently weak fiscal position and high liquidity and external vulnerability risks.
“Banks will maintain adequate capital buffers, supported by subdued loan growth and solid cash generation, despite dividend payouts remaining high.”
Moody’s emphasized that the outlook was upgraded from stable to positive due to an improved operating environment.
They stated that Pakistan’s economic outlook is enhancing from previously weak levels, citing better government liquidity and external positions compared to 2024.
The agency also mentioned that the sovereign’s 37-month, $7 billion IMF Extended Fund Facility, approved in September 2024, offers a reliable source of external financing for Pakistan in the coming years.
“We expect inflation to slow sharply to around 8% in 2025, from an average of 23.4% in 2024. We expect that lower inflation and policy rate cuts will spur private-sector spending and investment in Pakistan from current low levels.”
“As of September 2024, government securities accounted for 55% of banks’ total assets. This significant exposure links banks’ credit strength to that of the sovereign, which is improving from very weak levels.”
Moody’s stated that the GDP growth of 3% for 2025 and 4% for 2026, an increase from 2.5% in 2024. This growth is expected to be further supported by a 10 percentage point reduction in interest rates since the beginning of the monetary policy easing cycle in June 2024.
The agency also noted that while problem loans have risen to 8.4% of total loans as of September 2024, up from 7.6% in the previous year, overall loans represent only 23% of banks’ total assets.
