Moody’s maintains stable outlook for Pakistan banks

In this undated photo, people standing outside the building of National Bank of Pakistan. (APP)
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Updated 13 January 2021

Moody’s maintains stable outlook for Pakistan banks

  • Says despite difficult environment, government’s credit profile stable due to ongoing reforms and increasing policy effectiveness
  • Pakistani economy expected to return to modest growth of 1.5 percent in fiscal year 2021 despite coronavirus restrictions

ISLAMABAD: Rating agency Moody’s said on Wednesday the Pakistani government’s credit profile was stable on the back of reforms and policy effectiveness, adding that the country’s banking system reflected banks’ solid funding and liquidity, although a challenging operating environment would weigh on asset quality and profitability.
Moody’s published its outlook on the Pakistan Banking System titled, “Banking System Outlook – Pakistan: Stable outlook balances loan book and profitability pressure against stable funding and a resilient sovereign.” 
“Despite a difficult environment, the government’s credit profile is stable due to ongoing reforms and increasing policy effectiveness – a positive for the banks given their outsized holdings of Pakistani government debt link their credit profiles to that of the government,” said Constantinos Kypreos, a Moody’s Senior Vice President. “Deposit-based funding and good liquidity buffers also remain strengths, while the probability of government support in a crisis is high, even if its ability to do so is limited by fiscal challenges.”
The report said restrictions in place to contain the spread of the coronavirus would keep economic activity below pre-outbreak levels but the Pakistani economy was expected to return to modest growth of 1.5% in fiscal 2021.
“Government and central bank policy responses and structural reforms will soften the pandemic’s impact but not fully offset it,” the report said. “In this environment, we expect private-sector lending to grow modestly, by 5%-7%, over the calendar year.”
Nonperforming loans (NPLs) would rise from a sector-wide level of 9.9% of gross loans at September 2020 as the economic slowdown took a toll on borrowers’ repayment capabilities, the report said. Banks’ foreign operations, export-oriented industries and companies that depend on government payments and subsidies would be hit hardest. Loan repayment holidays and other support measures would contain the deterioration, but not eliminate the risks entirely. Banks’ heavy exposure to government bonds would also continue to link banks’ credit profiles with the fiscal strength of the government.
The report also said capital was modest but would remain broadly stable and profitability had materially increased during 2020, but would come under some pressure in 2021: Net interest margins will narrow after a huge 625-basis-point interest rate cut in 2020. Together with rising provisioning needs and subdued business generation, this will curb bottom-line profits.
“The government remains willing to support troubled banks but its ability to do so is limited by fiscal challenges reflected in its B3 rating,” the report concluded. 

PM Khan calls for affordable supply of COVID vaccines, debt relief for developing countries

Updated 25 January 2021

PM Khan calls for affordable supply of COVID vaccines, debt relief for developing countries

  • Pakistani prime minister delivers statement at fourth session of UN Conference on Trade and Development
  • Offers five-point agenda to address structural barriers hampering global development during pandemic

ISLAMABAD: Pakistani Prime Minister Imran Khan on Monday proposed a five-point agenda to address structural barriers hampering global development during the coronavirus pandemic, urging the "equitable and affordable" supply of vaccines to developing countries and calling for additional debt relief. 

Khan presented a statement at the fourth session of the United Nations Conference on Trade and Development Intergovernmental Group of Experts on Financing for Development. 

He said the pandemic offered an opportunity to address “structural barriers hampering global prosperity and development,” proposing a five-point agenda.

“One, a viable framework for equitable and affordable supply of COVID vaccine to developing countries. The coverage of the COVAX facility must be expanded. This would enable the developing countries to spend their precious resources on socio-economic development needs,” the PM said. 

He said developing nations should get additional debt relief, including suspension of debt repayments for the most stressed countries until the end of the pandemic, restructuring of their public-sector debt under an agreed and inclusive multilateral framework; and expanding concessional financing through multilateral development banks.

“Three, a general allocation of Special Drawing Rights (SDRs) of 500 billion dollars to help alleviate balance-of-payment pressures,” Khan added. “Four, return of stolen assets held by corrupt politicians and criminals ... Reportedly, a staggering amount of 7 trillion dollars is parked in 'haven' destinations. And it is also reported that one trillion dollars annually leaves the developing countries for these “haven” destinations.”

Finally, the PM said, mobilizing $100 billion annually by developed countries for climate action in developing countries was a target that needed to be met. 

“Economic malaise and recession, like the coronavirus, is highly communicable,” Khan said. “Global policy measures, along the lines I have outlined, are urgently needed to save lives, revive economies, and build back better.”

Pakistan has reported 534,041 COVID-19 cases so far, and 11,318 deaths, far lower than what officials had feared.

“In Pakistan, our efforts have been aimed at ensuring that we save people from dying from the virus, and at the same time preventing them from dying from hunger,” Khan said. “Our strategy fortunately has worked well so far. But continuous efforts are needed to fully overcome the second wave of the virus. And also at the same time to maintain and stimulate economic growth.”