Pakistan's banking system faces a credit risk: Moody's
Ratings agency says risk stems from country's inclusion on an international "grey list"
Ratings agency says risk stems from country's inclusion on an international "grey list". PHOTO: REUTERS
ISLAMABAD:
Pakistan's banking system faces a credit risk from the country's continued inclusion on an international "grey list" of nations falling short of global money laundering rules, rating agency Moody's said on Thursday.
Global watchdog Financial Action Task Force (FATF) said last week that Pakistan would remain on the list, expressing concern it had not completed an agreed-upon action plan, and giving it until June to do so.
"The announcement is credit negative for Pakistani banks because it raises questions about potential additional restrictions relating to banks' foreign-currency clearing services, as well as their foreign operations," Moody's said, adding that increased compliance costs would also hamper banks' profitability.
Though Pakistan's compliance with global rules had improved, Moody's said, its weakness risked banks losing access to foreign currency-clearing services, crucial for cross-border payments used to fund imports and exports.
"This risk has so far not crystallised in the jurisdictions that have been placed on the increased monitoring list," the agency said.
If Pakistan does not meet FATF's requirements to curb any chances of the financial system to be used for terror financing or money laundering, it could join Iran and North Korea on the global watchdog's blacklist.
That would lead to Pakistan being shunned by international financial institutions.
Pakistan's banking system faces a credit risk from the country's continued inclusion on an international "grey list" of nations falling short of global money laundering rules, rating agency Moody's said on Thursday.
Global watchdog Financial Action Task Force (FATF) said last week that Pakistan would remain on the list, expressing concern it had not completed an agreed-upon action plan, and giving it until June to do so.
"The announcement is credit negative for Pakistani banks because it raises questions about potential additional restrictions relating to banks' foreign-currency clearing services, as well as their foreign operations," Moody's said, adding that increased compliance costs would also hamper banks' profitability.
Though Pakistan's compliance with global rules had improved, Moody's said, its weakness risked banks losing access to foreign currency-clearing services, crucial for cross-border payments used to fund imports and exports.
"This risk has so far not crystallised in the jurisdictions that have been placed on the increased monitoring list," the agency said.
If Pakistan does not meet FATF's requirements to curb any chances of the financial system to be used for terror financing or money laundering, it could join Iran and North Korea on the global watchdog's blacklist.
That would lead to Pakistan being shunned by international financial institutions.