Moody's: Negative view for Pakistan banks

The fundamental credit outlook for the Pakistani financial institutions is negative, reflecting the expected challenges in the economic and credit environment and the deteriorated sovereign position in recent months, Moody's Investors Service said in a new report.

The negative outlook reflects the agency's view on the likely future direction of fundamental credit conditions in the industry over the next 12 to 18 months. It does not represent a projection of rating upgrades versus downgrades, Moody's said.

Pakistani rated banks have relatively significant sovereign and public sector exposures, Moody's said. Such exposures constrain the banks' ratings given the low B3 sovereign rating with a negative outlook assigned to Pakistan, the agency said. Although Moody's said it recognizes that these are short-term exposures and positions taken due to excess liquidity in the past.

Moody's said it expects asset quality to be challenged both by public and private corporate sector payment delays, but also by a weakening of the banks' SME and consumer-lending portfolios, which remain unseasoned and untested by an economic downturn.

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