Moody's downgrades five Pakistani banks' ratings, maintains negative outlook

Residents wait for their turn to withdraw money outside a bank in Islamabad, Pakistan, on March 30, 2020. (AFP/File)
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Updated 11 October 2022
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Moody's downgrades five Pakistani banks' ratings, maintains negative outlook

  • Last week Moody's cut Pakistan's sovereign rating by one notch, citing government liquidity, external vulnerability risks
  • Pakistan says it can meet external liabilities, the finance minister played down Moody’s action, no plan to tap debt market

KARACHI: Moody's on Tuesday downgraded the long-term deposit ratings to Caa1 from B3 of five Pakistani banks, the investors service said, days after it cut Pakistan's sovereign credit rating by one notch further into junk territory to Caa1 from B3.

Pakistan last week "strongly" contested the ratings downgrade by Moody's, saying it had adequate liquidity and financing arrangements to meet its external liabilities despite being hit by catastrophic floods.

Allied Bank Limited (ABL), Habib Bank Ltd. (HBL), MCB Bank Limited (MCB), National Bank of Pakistan (NBP) and United Bank Ltd. (UBL) are the five banks Moody’s has downgraded the long-term deposit ratings to Caa1 from B3.

“The rating agency has also downgraded the five banks' long-term foreign currency Counterparty Risk Ratings (CRRs) to Caa1 from B3,” the service said in a statement.

“As part of the same rating action, Moody's lowered the Baseline Credit Assessments (BCAs) of ABL, MCB and UBL to caa1 from b3, and as a result also downgraded their local-currency long-term CRRs to B3 from B2 and their long-term Counterparty Risk Assessments to B3(cr) from B2(cr). The BCAs of NBP and HBL were affirmed at caa1. The outlook on all banks' deposit ratings remains negative.”

Moody’s said its latest actions reflected the government of Pakistan's reduced capacity to support the banks, which had affected the banks whose ratings benefit from government support, namely NBP and HBL. The actions also reflected high credit linkages between the banks' balance sheets and sovereign credit risk, which constrained the banks' Baseline Credit Assessments at the level of the Caa1 rated government.

The downgrading also showed a “lowering of Pakistan's foreign currency ceiling to Caa1, which has affected the foreign currency CRRs of all rated banks.”

Concerns are rising over the health of Pakistan's economy as foreign exchange reserves run low, the local currency weakens and inflation stands at decades-high levels despite the resumption of an International Monetary Fund funding programme in August.

Worries centre around the South Asian nation's ability to pay for imports such as energy and food and to meet sovereign debt obligations.


Pakistan warns Afghanistan of ‘necessary defense measures’ if it fails to rein in ‘terrorists’

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Pakistan warns Afghanistan of ‘necessary defense measures’ if it fails to rein in ‘terrorists’

  • Pakistan’s UN ambassador accuses Afghan Taliban of supporting “terrorist” groups in Afghanistan at latest Security Council meeting
  • Kabul denies Islamabad’s allegations it supports cross-border militancy, saying it cannot be responsible for Pakistan’s security issues

ISLAMABAD: Pakistan’s UN Ambassador Asim Iftikhar Ahmad this week warned Afghanistan that Islamabad would take “all necessary defense measures” if Kabul failed to take action against militants that he alleged operate from Afghan soil. 

Ahmad was speaking during a UN Security Council meeting on Afghanistan during which he said Pakistan had lost 1,200 lives to “terrorism” this year that were planned, financed and orchestrated under the Afghan government’s watch. 

The development takes place as tensions persist between Islamabad and Kabul after deadly October clashes between the two that killed dozens of people on both sides. Pakistan routinely blames Afghanistan for not taking action against Pakistani Taliban militants allegedly present on Afghan soil. Kabul denies the allegation and says it cannot be held responsible for Pakistan’s security challenges. 

Tensions escalated in late November after two rounds of failed talks in Doha and Istanbul between the two sides. Afghanistan accused Pakistan of carrying out strikes on its territory. Pakistan’s military denied the claims as the Taliban vowed to retaliate. 

“The Taliban must take concrete and verifiable action against terrorist groups based on their soil, failing which; Pakistan will take all necessary defensive measures for the protection of its citizens, territory and sovereignty,” Ahmad said on Wednesday.

“We also expect UNAMA [United Nations Assistance Mission in Afghanistan] to provide an objective assessment of the security situation at the border. Incidents related to border clashes are primarily an issue of terrorism and peace and security.”

https://x.com/PakistanUN_NY/status/1998837227053572565

The Pakistani UN ambassador hoped the Taliban-led government in Afghanistan would promote a “conducive environment for sincere dialogue” that addresses Islamabad’s security concerns instead of working at cross purposes. 

He said elements within the Afghan Taliban rank and file are supporting “terrorist groups” in Afghanistan such as the Tehreek-e-Taliban Pakistan, Balochistan Liberation Army, Al-Qaeda, Daesh and other outfits. He alleged that the Taliban were allowing these militants “safe passage” to operate with impunity. 

“There is also credible evidence of collaboration among these terrorist groups through joint training, illicit weapons trade, refuge to terrorists, and coordinated attacks against Pakistan using the Afghan soil,” he said. 

Heightened tensions between Afghanistan and Pakistan saw cross-border clashes between the two sides last week, which according to Afghan officials, claimed five lives. Both accused each other of violating the ceasefire via unprovoked firing.