NEW YORK – Moody’s Traders Service on Tuesday downgraded the long-term deposit rankings of 5 Pakistani banks – Allied Financial institution Restricted (ABL), Habib Financial institution Ltd. (HBL), MCB Financial institution Restricted (MCB), Nationwide Financial institution of Pakistan (NBP) and United Financial institution Ltd. (UBL).
The ranking company has additionally “downgraded the five banks’ long-term foreign currency Counterparty Risk Ratings (CRRs) to Caa1 from B3”.
As a part of the identical ranking motion, Moody’s lowered the Baseline Credit score Assessments (BCAs) of ABL, MCB and UBL to caa1 from b3, and because of this additionally downgraded their local-currency long-term CRRs to B3 from B2 and their long-term Counterparty Danger Assessments to B3(cr) from B2(cr). The BCAs of NBP and HBL had been affirmed at caa1. The outlook on all banks’ deposit rankings stays damaging,” learn Moody’s official assertion.
The event comes days after Moody’s minimize the Pakistan’s issuer and senior unsecured debt rankings to Caa1 from B3, and maintained a damaging outlook, for first time in seven years.
Moody’s mentioned that the ranking actions replicate Pakistani authorities’s decreased capability to assist the banks, which has affected the banks whose rankings profit from authorities assist (specifically NBP and HBL); the excessive credit score linkages between the banks’ steadiness sheets and sovereign credit score threat, which constrains the banks’ Baseline Credit score Assessments on the degree of the Caa1 rated authorities; and the decreasing of Pakistan’s overseas forex ceiling to Caa1, which has affected the overseas forex CRRs of all rated banks.
“The decreased capability of the Pakistani authorities to assist the banks in case of want… is indicated by the downgrade of the sovereign’s bond ranking to Caa1, from B3, which was pushed by worsening financial outlook, elevated authorities liquidity and exterior vulnerability dangers and better debt sustainability dangers, within the aftermath of devastating floods that hit the nation since June 2022.
“Consequently, NBP’s and HBL’s deposit rankings now not incorporate a authorities assist uplift,” it mentioned.
It highlighted that ratting of the banks has been downgraded primarily due to “the rated banks’ very large holding of sovereign debt securities, at between 7-14 times their Tier 1 capital, which will continue to link their creditworthiness to that of the government, whose ratings are on negative outlook”.
The outlook additionally mirrored “increased vulnerabilities on the banks’ financial metrics and standalone credit profile that stem from Pakistan’s challenging macro-economic and operating conditions; the latter could also lead Moody’s to reassess its macro profile for Pakistan, which currently stands at “Very Weak +”.
Dar Vows to Give Befitting Reply to Moody’s
After the Moody’s downgraded the Pakistan’s ranking, Finance Minister Ishaq Dar warned that he would give a “befitting reply” in an official assembly if the company didn’t reverse the downgrade of Pakistan’s sovereign credit standing.
Speaking exterior an accountability individual in Islamabad final week, Dar mentioned he had spoken to the company’s officers and instructed them that they “should not have done it”.
Moody’s ought to have consulted Pakistan previous to the downgrade, the finance minister mentioned, including that there was “no cause for worry” as ranking company Fitch had additionally downgraded the UK earlier this week.
“The primary work of those ranking companies is expounded to bonds. We floated $500 million bonds in April 2014 and we had 14 occasions oversubscription.
