Pakistan banks are stable for next 18 months, says Moody's

THERE is good news for the banking sector in Pakistan. Global rating agency Moody's Investors Services has given a "stable outlook" for Pakistan's banking system over the next 12-18 months.

The agency said in terms of the operating environment, economic activity in Pakistan would also be supported by the ongoing infrastructure projects, improvements in power generation and domestic security.

Nevertheless, depreciation of the rupee "likely" to raise private investment from low levels.

"The sovereign credit profile has improved in recent months, benefiting the banks through their high exposure to government securities, which account for around 40 per cent of their assets," said Moody's Senior Vice President Constantinos Kypreos.

Moody's said that the operating conditions for banks in Pakistan are "gradually improving".

Earlier, the situation was “difficult” due to the tight monetary conditions and the large government borrowing needs, it said.

Moody's noted that while economic growth in Pakistan would "remain subdued. Markets expected the State Bank of Pakistan to lower policy rates over the next few years.

Stable customers deposits and high liquidity are the key strengths of Pakistan banking system.

The agency said it expected the government would remain willing to support "at least the systematically important banks in case of need”.

In December 2019, Moody's upgraded Pakistan's outlook from 'negative' to 'stable'.