Moody’s Ratings on Tuesday upgraded the long-term local and foreign-currency deposit ratings of five major Pakistani banks, citing improved operating conditions, stronger government support capacity, and resilient bank performance.
The international credit ratings agency raised the deposit ratings of Allied Bank Limited (ABL), Habib Bank Ltd. (HBL), MCB Bank Limited (MCB), National Bank of Pakistan (NBP), and United Bank Ltd. (UBL) to Caa1 from Caa2. It also revised the outlook of all five banks from positive to stable.
The banks’ upgrade follows Moody’s recent upgrade of Pakistan’s sovereign credit rating to Caa1, reflecting the country’s improving external position and progress under the ongoing $7 billion IMF Extended Fund Facility. Announced on Aug. 13, the upgrade highlighted structural reforms, easing inflation, and ongoing macroeconomic stabilization.
“The decision to upgrade Pakistani banks’ ratings reflects the improving operating environment, enhanced government capacity to support the sector, and the banks’ solid financial metrics,” read a Moody’s statement. It said the Baseline Credit Assessments and Adjusted BCAs for ABL, HBL, MCB, and UBL had been upgraded from Caa2 to Caa1, while NBP’s BCA was raised to Caa2 from Caa3.
Sector strengths and risks
The upgrades come as Pakistani banks continue to show resilience, supported by stable deposit-based funding, high liquidity buffers, and improved earnings. Recent economic indicators, including a drop in inflation from 30.8% in 2023 to 12.6% in 2024, and a reduction in the State Bank of Pakistan’s benchmark rate from 22% to 11%, are expected to lower default risks and boost credit demand.
However, Moody’s noted that asset risks remain high, and profitability could come under pressure due to compressed interest margins. Banks also remain heavily exposed to sovereign debt—government securities account for about half of total banking assets.
According to Moody’s, NBP’s strong earnings and deposit base are tempered by elevated non-performing loans (14.2%) and modest capital buffers. The agency sees a high likelihood of government support due to its systemic importance and 75% government ownership.
For HBL, Moody’s states that the bank’s solid asset quality and liquidity are offset by exposure to government securities and modest capitalization. It has cited strong liquidity and deposits for UBL, but noted elevated non-performing loans (14.7%) from the acquisition of SilkBank, and weak capital buffers.
MCB, says Moody’s, posted strong profitability (1.7% ROA in Q1 2025) and maintains solid liquidity, although asset risk and modest capitalization remain concerns. For ABL, Moody’s said it has one of the lowest non-performing loan ratios (1.6%), benefiting from a strong deposit base and liquidity. However, it still faces high sovereign exposure and modest capital adequacy.
Outlook and risks
The stable outlook for the banks aligns with the sovereign rating and reflects the expectation of continued macroeconomic improvement, reduced inflation, and adequate capital buffers. However, Moody’s warned that ratings could be downgraded if Pakistan’s sovereign credit rating is downgraded, or the banks’ asset quality or profitability deteriorate significantly.
Conversely, upgrades may follow further improvements in the sovereign credit profile and the operating environment, as long as banks maintain current performance levels.