Out­look re­mains neg­a­tive for Pak­istan’s bank­ing sys­tem

The Pak Banker - - Front Page -

IS­LAM­ABAD: Moody's ex­pects that higher in­fla­tion will likely lead to ris­ing lend­ing rates, which, to­gether with the weak­ened econ­omy, will chal­lenge bor­row­ers' pay­ment ca­pac­ity, con­tribut­ing to fur­ther as­set-qual­ity de­te­ri­o­ra­tion for banks. Heavy flood­ing in Pak­istan dur­ing Au­gust 2010 caused a hu­man­i­tar­ian dis­as­ter and pre­cip­i­tated de­te­ri­o­rat­ing macroe­co­nomic con­di­tions, se­verely weak­en­ing the banks' op­er­at­ing en­vi­ron­ment.

The neg­a­tive out­look for Pak­istan's bank­ing sys­tem re­flects the chal­leng­ing op­erat- ing en­vi­ron­ment that has high­lighted the limited depth and di­ver­si­fi­ca­tion of the coun­try's bank­ing sys­tem, with in­creas­ing sus­cep­ti­bil­ity to event risk at the B3-rated sov­er­eign level, says Moody's In­vestors Ser­vice in its new Bank­ing Sys­tem Out­look on Pak­istan. The out­look ex­presses Moody's ex­pec­ta­tions for the fun­da­men­tal credit con­di­tions in the coun­try's bank­ing sys­tem over the next 12-18 months. Heavy flood­ing in Pak­istan dur­ing Au­gust 2010 caused a hu­man­i­tar­ian dis­as­ter and pre­cip­i­tated de­te­ri­o­rat­ing macroe­co­nomic con­di­tions, se­verely weak­en­ing the banks' op­er­at­ing en­vi­ron­ment. The di­rect im­pact on rated Pak­istani banks has been mod­est, as the floods plagued largely un­banked, ru­ral ar­eas. How­ever, Moody's ex­pects weaker eco­nomic growth and higher in­fla­tion in the short term, as the floods have led to food short­ages, ris­ing com­mod­ity prices and a re­newed re­course of the govern­ment to deficit mon­eti­sa­tion. "These ad­verse de­vel­op­ments cre­ate a dif­fi­cult op­er­at­ing en­vi­ron­ment for banks, which is a key driver of our neg­a­tive sys­tem out­look. -PB News

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