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.