Moody’s downgrades rating of largest banks

Outlook on long-term local currency deposits of five Pakistani banks has been changed from ‘stable’ to ‘negative’.

KARACHI: Outlook on long-term local currency deposits and the financial strength of savings of five Pakistani banks has been changed from ‘stable’ to ‘negative’ by Moody’s Investors Service.

Reuters reported that the rating agency has said that it expects economic growth to slow down and inflationary pressures to rise sharply on account of factors such as food shortages.

The long-term outlook of Allied Bank, Habib Bank, MCB Bank, National Bank and United Bank has been down-graded to negative.

Simultaneously, the ratings agency has affirmed that the foreign currency deposit ratings of ‘B3/Not-Prime’ assigned to these banks.

“Non-performing loans are expected to increase, especially those extended to small and medium enterprises and to the agriculture sector,” commented Khurram Shehzad, Research Head at InvestCap.
“The profitability of banks will be affected going forward,” he summed up.

Experts highlighted that existing loans given by scheduled banks stand at about Rs4 trillion. They assert that in addition to the expectation of greater non-performing loans, local currency deposits may also falter in coming months as reconstruction expenses increase.

Published in The Express Tribune, September 3^rd, 2010.