April 3, 2020 (MLN): Moody’s has further slashed Pakistan’s estimated growth rate to 2% for the current fiscal year due to the COVID-19 outbreak. It also believes that the recent steps by the State Bank of Pakistan (SBP) would soften the impact of the pandemic on the country’s banks.
“We expect Pakistan’s real GDP growth to slow to 2.0% to 2.5% for fiscal 2020 (which ends 30 June 2020), lower than our earlier forecast of 2.9%, reflecting the impact of the coronavirus pandemic,” Moody’s said in its report published on April 2, 2020.
“We expect the measures to mitigate banks’ asset-quality deterioration amid less business generation and loan growth in an economic slowdown”, it further added.
It further noted that the top five banks of the country, i.e Habib Bank Limited, National Bank of Pakistan, United Bank Limited, MCB Bank Limited and Allied Bank Limited, are likely to gain from high or very high levels of Government support, which will protect their credit profiles from impairment of their standalone credit assessments.
Last month, the State Bank of Pakistan cut Policy Rate twice to curb the adverse economic situation created by COVID-19, ultimately bringing it to 11%. On this, Moody’s noted ‘The policy rate reduction will help maintain credit growth, which we expect will remain below nominal GDP growth (including inflation impact). Lower interest rates on loans will also improve borrowers’ repayment capacity. However, the lower rates will reduce net interest margins and diminish banks’ earnings’.
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