NEWYORK: Moody’s Investors Service on Tuesday downgraded the long-term deposit ratings of five Pakistani banks to Caa1 from B3.
Allied Bank Limited (ABL), Habib Bank Ltd (HBL), MCB Bank Limited (MCB), National Bank of Pakistan (NBP) and United Bank Ltd (UBL) are the banks being downgraded.
Moody’s also lowered the banks’ long-term foreign currency counterparty risk ratings (CRRs) to Caa1 from B3.
As part of the same rating action, Moody’s decreased the baseline credit assessments (BCAs) of ABL, MCB, and UBL to Caa1 from B3, and as a result, downgraded their long-term counterparty risk assessments to B3(cr) from B2 and their local currency long-term CRRs to B3 from B2 (cr). NBP’s and HBL’s BCAs were confirmed at Caa1.
As stated on Moody’s website, “the outlook on all banks’ deposit ratings remains negative.”
The downgrading comes days after Moody’s lowered Pakistan’s senior unsecured debt rating from B3 to Caa1 and its local and foreign currency ratings as well.
Moody’s said in a statement that the ratings were affected by the government’s diminished ability to support the banks, which had an impact on NBP and HBL, two banks whose ratings benefit from government support, the high credit links between the banks’ balance sheets and sovereign credit risk, and the lowering of Pakistan’s foreign currency ceiling to Caa1, which had an impact on all rated banks’ foreign currency CRRs.
“The downgrade of the sovereign bond rating to Caa1 from B3 is indicative of the reduced capacity of the Pakistani government to support the banks in case of need. This was driven by worsening economic outlook, increased government liquidity and external vulnerability risks, and higher debt sustainability risks, in the wake of devastating floods that have struck the nation since June 2022. As a result, a government assistance uplift is no longer factored into NBP’s and HBL’s deposit ratings.
