Moody's: Negative view for Pakistan banks

The negative outlook for Pakistan's banking system reflects the challenging operating environment that has highlighted its limited depth and diversification, with increasing susceptibility to event risk at the B3-rated sovereign level, Moody's Investors Service said in a new report.

The outlook also expresses expectations for the fundamental credit conditions in this banking system over the next 12 to 18 months, Moody's said.

Heavy flooding in Pakistan during August 2010 caused a humanitarian disaster and precipitated deteriorating macroeconomic conditions, severely weakening the banks' operating environment, the agency said.

The direct impact on rated Pakistani banks has been modest, as the floods plagued largely un-banked, rural areas, Fitch said.

But, Moody's said it expects weaker economic growth and higher inflation in the short term, as the floods have led to food shortages, rising commodity prices and a renewed recourse of the government to deficit monetization.

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