Moody\u2019s Ratings (Moody\u2019s) upgraded the long-term deposit ratings to Caa2 from Caa3 of five Pakistani banks: Allied Bank Limited (ABL), Habib Bank Ltd. (HBL), MCB Bank Limited (MCB), National Bank of Pakistan (NBP) and United Bank Ltd. (UBL).<\/p>\n\n\n\n
\u201cWe have also upgraded ABL, HBL, MCB, and UBL\u2019s Baseline Credit Assessments (BCAs) to caa2 from caa3 while affirming the BCA of NBP at caa3. The outlook on all banks\u2019 long-term deposit ratings has been changed to positive from stable\u201d, the rating agency added.<\/p>\n\n\n\n
The rating action follows Moody\u2019s decision to upgrade the government of Pakistan\u2019s issuer and senior unsecured debt ratings to Caa2 from Caa3.<\/p>\n\n\n\n
PSX Gains Over 350 Points After Moody\u2019s Rating Upgrade<\/a><\/p>\n\n\n\n \u201cToday\u2019s rating action reflects Pakistan\u2019s strengthened creditworthiness \u2013 as indicated by the upgrade of the sovereign rating to Caa2 from Caa3 \u2013 and is driven by the country\u2019s improving macroeconomic conditions and moderately better government liquidity and external positions, from very weak levels. These developments also benefit Pakistani banks, given their significant holdings of sovereign debt securities and the resultant high interlinkages between the banks\u2019 credit profile and that of the government. The upgrade of NBP is also driven by the government\u2019s improved capacity to provide support in case of need\u201d, it added.<\/p>\n\n\n\n Moody\u2019s stated that the positive outlook on all banks\u2019 long-term deposit ratings is in line with the positive outlook on Pakistan\u2019s government rating, and reflects the potentially higher capacity of the Pakistani government to support the banks in case of need. The positive outlook also reflects potential improvements in the operating environment that could result in a higher macro profile for Pakistan and lead to higher BCAs.<\/p>\n\n\n\n The ratings could be upgraded following a strengthening of the operating environment reflected in a higher macro profile, and in the event of a sovereign rating upgrade, provided that the banks maintain their resilient financial performance.<\/p>\n\n\n\n Pakistani banks\u2019 outlook on the long-term deposit ratings could be stabilized if the sovereign rating is stabilized, given the banks\u2019 sizeable holdings of sovereign debt securities. Stabilization of the outlook of individual banks could also develop from a deterioration in their financial metrics, specifically on asset quality, profitability, and capital adequacy.<\/p>\n\n\n\n \u201cWe have affirmed NBP\u2019s BCA and Adjusted BCA at caa3 while upgrading the long-term deposit ratings to Caa2 from Caa3. The affirmation of NBP\u2019s BCA at caa3 balances its good funding and liquidity profile and adequate earnings-generating capacity, against the expected weakening of its capital ratios. The latter follows a supreme court ruling against the bank relating to a pension litigation case, which management estimates to cost PKR 98 billion or around 25% of its shareholders\u2019 equity. We continue to incorporate a very high probability of government support to NBP\u2019s long-term deposit ratings given the bank\u2019s significant size in the banking system and the 75% government ownership through the Pakistan Sovereign Wealth Fund (PSWF), which now translates into one-notch of sovereign support uplift, and brings the long-term deposit ratings of the bank to Caa2 in line with the sovereign rating\u201d, it added.<\/p>\n\n\n\n It further stated, \u201cWe have upgraded the BCA and Adjusted BCA of HBL to caa2 from caa3, as well as the bank\u2019s long-term deposit ratings to Caa2 from Caa3. The upgrade of HBL\u2019s long-term deposit ratings to Caa2 follows the sovereign rating upgrade and reflects its good liquidity buffers, strong deposit-funded profile, and good earnings-generating capacity, but also the elevated nonperforming loans and modest adjusted capital buffers when we risk-weigh Pakistani government securities at 150%. The deposit ratings were previously constrained by the sovereign rating given the bank\u2019s very high exposure to government securities, accounting for 45% of total assets as of June 2024.<\/p>\n\n\n\n \u201cWe have upgraded UBL\u2019s BCA and Adjusted BCA to caa2 from caa3, and the long-term deposit ratings to Caa2 from Caa3. UBL\u2019s long-term deposit ratings were upgraded to Caa2 further to the upgrade of the sovereign rating. This upgrade reflects the bank\u2019s stable deposit base, strong liquid buffers, and moderating profitability, but also its higher-than-system average nonperforming loans and modest adjusted capitalization when we risk-weigh Pakistani government securities at 150%. The deposit ratings were previously constrained by the sovereign rating given the bank\u2019s very high exposure to government securities, accounting for 75% of total assets as of June 2024\u201d, Moody\u2019s added.<\/p>\n\n\n\n The Rating agency further stated, \u201cWe have upgraded the BCA and the Adjusted BCA of MCB to caa2 from caa3 and the long-term deposit ratings to Caa2 from Caa3. The upgrade of MCB\u2019s long-term deposit ratings to Caa2 follows the upgrade of the sovereign rating and reflects the bank\u2019s strong profitability, stable deposit base, and liquidity buffers, but also its high asset risks amid a challenging environment, while adjusted capitalization remains weak when we risk-weigh Pakistani government securities at 150%. The deposit ratings were previously constrained by the sovereign rating given the bank\u2019s very high exposure to government securities, accounting for 49% of total assets as of March 2024\u201d.<\/p>\n\n\n\n