Moody’s has reviewed his perspective from the banking sector of Pakistan to positive from stable, citing better operational conditions and resistant financial performance, he said Wednesday.
The change is aligned with the improved government of the government (positive CAA2), backed by the important exposure of banks to sovereign debt, added the qualification company.
“We have changed our perspective on Pakistan’s banking system to reflect the resistant financial performance of banks, as well as improving macroeconomic conditions of very weak levels a year ago,” according to the Moody’s statement.
“The positive perspective of the sector also reflects the positive perspective of the Pakistan government (positive CAA2), with the Pakistani banks that have a significant exposure to the sovereign through their large properties of government values, which represent about half of the total bank assets.
“However, the sustainability of Pakistan’s long -term debt remains a key risk, with its still very weak fiscal position, high liquidity and external vulnerability risks,” according to the report.
The credit rating agency anticipates that Pakistan’s economy will expand by 3% in 2025, compared to 2.5% in 2024 and -0.2% in 2023.
“Inflation also decreases significantly, what we estimate by around 8% by 2025 from an average of 23% in 2024,” he said, he added: “The formation of problematic loans will slow down as loan costs and inflation are reduced, although the margins of net interests will be reduced in the back of the cuts of interest rates.”
“Banks will maintain adequate capital shock absorbers, backed by moderate loan growth and a solid cash generation, despite the fact that dividend payments remain high.”
Moody’s said that Outlook’s positive out of Stable reflects a better operational environment.
“Pakistan’s economic perspective is improving from very weak levels, with better government liquidity and external positions compared to 2024”.
Moody’s said the IMF program of 37 billion $ 7 billion of Pakistan, approved in September 2024, provides a source of credible external financing for the coming years.
“We pronote a 3% GDP growth in 2025 and 4% in 2026, compared to 2.5% in 2024, driven by a 10 percentage point cut in interest rates since the beginning of the monetary policy flexibility cycle in June 2024”.
“We hope that inflation decreases abruptly to about 8% in 2025, from an average of 23.4% in 2024. We hope that the lower policy and inflation cuts cuts stimulate the expense and investment of the private sector in Pakistan of current low levels.”
However, Moody’s warned that the high exposure of banks to government values increases the risk of assets.
“As of September 2024, government values represented 55% of the total assets of the banks. This significant exposure links the credit force of the banks with that of the sovereign, which is improving from very weak levels.
“Although problematic loans have deteriorated 8.4% of the total loans to September 2024 of 7.6% in the previous year, general loans represent only 23% of the total assets of the banks,” he said.
Moody’s said that the elimination of ADR tax for 2025 was expected to relieve pressure on banks to expand loans, while demand remains moderate despite the lower costs of loans.
He also noted that the tax incentive linked to ADR required that the banks reach an advance of 50% deposit at the end of 2024, with a breach that triggers an additional tax to 10-15%.
After recent interest cuts cuts that have reduced the 12%policy rate, the margins will be reduced as local banks obtain most of their earnings of the interests they receive in large investments in government values, which are producing lower yields compared to last year, he added.
“At the same time, the reproduction of downward assets will only be compensated in part for the lowest financing costs, while the growth in commercial activity and non -interesting income will not completely counteract margin compression. “We hope that the performance of the assets of the assets moderates around 0.9% -1.0% in 2025,” he said.
The financial service provider said that the pakistan currency risks (FX) had been reduced in response to an increase in SBP FX reserves since the unlocking of the IMF program.
In his report published in November last year, Moody’s said the interest costs in Pakistan would represent about 40% of the total expenditure in 2025, compared to around a quarter in 2021.
Last month, Fitch Ratings said: “Pakistan has continued advancing in the restoration of economic stability and the reconstruction of external dampers.”
He said that progress in difficult structural reforms would be key to the next reviews of the International Monetary Fund (IMF) and continuous financing of multilateral and bilateral lenders.
He wrote that the rapid deflation reflected the effects of the fading base of the previous subsidy reforms and the stability of the exchange rate, backed by a narrow monetary position that submitted the needs of domestic demand and external financing.
The economic activity now benefits from the stability and fall of interest rates, having absorbed the strict policy configuration, Fitch added.
He expects a real added value growth of 3.0% in fiscal year 2000, noting that the growth of the private sector credit became positive in real terms in October 2024 for the first time since June 2022.
