ISLAMABAD: Moody’s has placed Pakistan’s five big banks for downgrade in ratings linked to their credit profiles emanating from the government’s potentially weakening creditworthiness in case of default on private debts.
Credit rating agency Moody’s said it placed on review for downgrade the B3 long-term local-currency deposit ratings of Allied Bank Limited (ABL), Habib Bank Ltd (HBL), MCB Bank Limited (MCB), National Bank of Pakistan (NBP) and United Bank Ltd (UBL).
“The bank rating actions reflect Moody’s view that the government’s potentially weakening creditworthiness will weigh on the standalone credit profile of the banks given the high credit linkages between their balance sheets and sovereign credit risk and the risk of a further weakening in the government’s capacity to support the banks in case of need,” Moody’s said in a statement.
The bank’s foreign currency deposit ratings and baseline credit assessments were also placed on review for downgrade.
This follows the agency’s decision last week to place Pakistan’s B3 issuer and senior unsecured ratings on review for downgrade on an expectation that the government would request bilateral official sector debt service relief under the recently announced G20 initiative.
READ MORE: Moody’s places Pakistan’s B3 rating under review for downgrade
Moody’s said it would assess the impact of the government’s potentially weakening creditworthiness on the standalone credit profile of the banks given the high credit linkages between their balance sheets and sovereign credit risk, during the review period.
It added that the high direct exposure to government credit risk renders the banks susceptible to event risk at the sovereign level and constrains their baseline credit assessments at the government rating.
Moody’s would further assess the impact of the coronavirus pandemic on economic and business activity and on the financial performance of the big-five banks, especially on their asset quality and profitability.
The rating agency said another factor driving the reviews for downgrade is the potential deterioration of the Pakistani government’s capacity to extend support to banks when needed.
Moody’s said upward pressure on the banks’ ratings is limited as indicated by the review for downgrade. “The ratings would likely be confirmed if Pakistan’s B3 sovereign rating is confirmed. This is also conditioned by no material deterioration in banks’ standalone fundamentals throughout this coronavirus crisis,” it added.
“Downward pressure on the baseline credit assessments of individual banks could also develop from a greater-than-expected deterioration in operating conditions from the coronavirus spread, weakening their asset quality, profitability, and capital adequacy.”
