KARACHI – Pakistan banking sector has witnessed a positive development as US-based global ratings agency, Moody’s Investor Service, upgraded its outlook from negative to stable.

The ratings agency issued updated outlook citing banks’s solid profitability and stable funding as country is moving out of worst politicial and economic crisis.

In its reports, Moody’s said banks’and liquidity provide an adequate buffer to withstand the macroeconomic woes and political turmoil.

It said the economy of fifth most populous nation will return to modest growth of 2pc in 2024 after subdued activity last year, and inflation will fall to around 23pc.

The report however mentioned that soaring interest rates and back breaking inflation will continue to dent private-sector spending and investment in near future.

The top rating agency said banks are financing sovereign’s wide fiscal deficits, leaving little space to lend to real economy. It said efforts to enhance financial inclusion and support key sectors will only partially meet the demand for credit.

Moody’s outlook for Pakistani banks

Moody’s predicted that the banking sector’s profitability will remain strong due to wide net interest margins, but it will plunge from the peak in 2023 due to slower business growth, higher funding costs from increased rates, and amid surge in taxes.

Pakistan’s credit rating could be upgraded if the government reduces external and liquidity risks, it said, as Moody’s expects Pakistani banks’ modest capital ratios to stay stable, supported by strong earnings despite high dividend payouts.

Moody’s has given a baseline credit assessment of Caa3 to the top five largest banks in Pakistan, including National Bank of Pakistan (NBP), HBL, UBL, MCB, and Allied Bank Limited.