Pak banking system stable, says Moody’s

dubai — Moody’s Investors Service says that its outlook for banks in Pakistan (B3 stable) is stable over the next 12-18 months, with the outlook driven by an accelerating economy and stable funding, while also taking into account the banks’ large holdings of low-rated government bonds, modest capital levels and high asset risks.

“Pakistan’s economic growth — boosted by domestic demand and China-funded infrastructure projects — will stimulate lending and support a slight improvement in asset quality over the next 12-18 months,” said Constantinos Kypreos, a Moody’s senior vice-president.

“And, despite margin pressure, the banks’ profitability should remain flat,” adds Kypreos. “Stable funding from customer deposits and high liquidity levels represent further strengths.”

“However, the biggest challenge facing the banks is their large holdings of low-rated Pakistan government bonds,” said Corina Moustra, a Moody’s associate analyst. “Modest capital levels and high asset risks pose additional risks,” adds Moustra.

Moody’s conclusions are contained in its just-released banking system outlook for Pakistan and is authored by Kypreos and Moustra.

The stable outlook is based on

Stable funding from customer deposits and high liquidity levels represent further strengths Constantinos Kypreos, Senior vice-president at Moody’s

Moody’s assessment of five drivers: operating environment (stable), asset risk and capital (stable), profitability and efficiency (stable), funding and liquidity (stable) and government support (stable).

On the operating environment, Moody’s says that real GDP growth will accelerate to 5.5 per cent and 5.6 per cent in the fiscal years ending June 2018 and June 2019. Infrastructure investment and solid domestic demand will prove the main drivers of economic growth and will fuel lending growth of 12-15 per cent for 2018. The economy, however, remains susceptible to political instability and a deterioration in domestic security.

With regard to asset risk, Moody’s expects asset quality to improve in the current supportive macroeconomic environment, helped by the banks’ diversified loan portfolios and low corporate debt. Moody’s points out that non-performing loans measured 9.2 per cent of gross loans as of 30 September 2017.

— business@khaleejtimes.com