Ratings Watch - S&P says Pakistan’s Banking System Appears Sound

The credit rating agency views the country's contingent fiscal risks as limited based on its view of Pakistan’s government-related entities and its financial system.

According to the agency Pakistan's banking system appears sound, reflecting its high profitability and strong capitalization. However it pointed out that nonperforming loan ratio of 12.4% as of June 2015 and the industry's still-developing risk assessment continue to pose some risks.

The agency believes the SBP's autonomy should be strengthened through the establishment of an independent monetary policy council for rate setting. It noted that SBP credibility has risen with the introduction in May of an interest rate corridor and separate policy rate for better liquidity management and having a stronger direction for short-term market interest rates in the interbank market.