ISLAMABAD: Keeping Pakistan’s economic progress in view, a world’s leading credit ratings provider has lifted the rating of country’s banking sector from negative to stable.
Moody’s Investors Service Assistant Vice President Elena Panayiotou, who is also a leading analyst for Pakistani banks, has said that the financial services company expects 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.
Moody’s forecasts Pakistan’s real GDP will expand by 4.0 per cent in the fiscal year ending June 2016 (compared to a sluggish 2.8pc during 2008-13), mainly driven by higher spending on infrastructure projects as the government 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 improvement in Pakistani banks’ asset quality.
“We expect problem loans will decline to around 12pc of total loans by the end of 2016 compared with 12.4pc for the end of June 2015. Banks, however, will remain heavily exposed to the low-rated Pakistan sovereign, linking the banks’ creditworthiness 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 (upgraded to B3 from Caa1 on June, 11, 2015).
