Moody’s upgrades ratings of five major Pakistani Banks on improved outlook

August 20, 2025 (MLN): 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 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. The outlook on all five banks was revised to stable from positive.

The action follows Moody’s recent upgrade of Pakistan’s sovereign credit rating to Caa1, reflecting the country’s improving external position and progress under the IMF Extended Fund Facility (EFF).

That upgrade, announced on Aug. 13, 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,” Moody’s said in its announcement.

Moody’s also upgraded the Baseline Credit Assessments (BCAs) and Adjusted BCAs for ABL, HBL, MCB, and UBL to caa1 from caa2, 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.

Still, 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.

Bank-by-Bank Breakdown

NBP: Upgraded to Caa1; BCA raised to caa2. The bank’s strong earnings and deposit base are tempered by elevated non-performing loans (14.2%) and modest capital buffers.

Moody’s sees a high likelihood of government support due to its systemic importance and 75% government ownership.

HBL: Upgraded to Caa1; BCA raised to caa1. The bank’s solid asset quality and liquidity are offset by exposure to government securities and modest capitalization.

UBL: Upgraded to Caa1; BCA raised to caa1. Moody’s cited strong liquidity and deposits, but noted elevated non-performing loans (14.7%) from the acquisition of Silk Bank, and weak capital buffers.

MCB: Upgraded to Caa1; BCA raised to caa1. The bank posted strong profitability (1.7% ROA in Q1 2025) and maintains solid liquidity, although asset risk and modest capitalization remain concerns.

ABL: Upgraded to Caa1; BCA raised to caa1. With one of the lowest non-performing loan ratios (1.6%), the bank benefits from a strong deposit base and liquidity, but still faces high sovereign exposure and modest capital adequacy.

Outlook and Risks

The stable outlook 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.

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