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Moody’s rates Pakistan’s economy stable

Discussion in 'Pakistan Economy' started by farhan_9909, Nov 12, 2015.

  1. farhan_9909

    farhan_9909 PROFESSIONAL

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    ISLAMABAD – Moody’s Investors Service on Wednesday changed the outlook for the Pakistan’s banking system to stable from negative reflecting the improvement in the economic growth prospects.


    “We expect strengthening the economy, together with the central bank’s accommodative monetary policy to stimulate lending growth and support the banking sector’s loan performance over the next 12-18 months,” said Moody’s Assistant Vice President Elena Panayiotou.


    Moody’s forecasts Pakistan’s real GDP will expand by 4.0% in the fiscal year ending June 2016 (compared to a sluggish 2.8% during 2008-13), mainly driven by higher spending on infrastructure projects as the government of Pakistan aims to ease energy shortages and execute projects associated with the China-Pakistan Economic Corridor (CPEC), Moody’s reported.


    The rating agency noted that the strengthening of the domestic economy will contribute to the improvement in Pakistani banks’ asset quality. “We expect problem loans will decline to around 12 percent of total loans by the end of 2016 compared with 12.4 percent for the end of June 2015. Banks will remain heavily exposed to the low-rated Pakistan sovereign, linking the banks’ credit worthiness to that of the sovereign,” said Panayiotou.


    Moody’s expects earnings to ease slightly over the outlook period, mainly because of the lower coupon on government securities in a declining interest rate environment and as the market’s perception of Pakistan’s risk profile eases. Higher loan volumes and capital gains booked through the sale of government securities will only partially offset the pressure on profitability.


    The rating agency expects that Pakistani banks will maintain ample liquidity and continue to benefit from large volumes of low-cost and stable customer deposits. “The Pakistani banks’ deposit-based funding structure remains credit strength. We expect inflows of remittances from migrant workers will continue to drive the growth in bank deposits and support banks’ funding bases” Moody’s assistant vice president said.


    While banks will use part of their liquid asset to fund lending, Moody's expects the sector to maintain strong liquidity buffers, with core liquid assets - defined as cash and bank placements - at 12 percent of total assets and liquid securities, more broadly defined, at 41 percent of total assets as of June 2015, the Moody’s statement said

    Moody’s rates Pakistan’s economy stable