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Moody’s Ratings has upgraded the long-term deposit ratings of five major Pakistani banks, reflecting an improved economic outlook. Allied Bank (ABL), Habib Bank (HBL), MCB Bank, National Bank of Pakistan (NBP), and United Bank (UBL) all received upgrades to Caa1 from Caa2.
The agency also lifted the Baseline Credit Assessments (BCAs) and Adjusted BCAs for ABL, HBL, MCB, and UBL to caa1 from caa2, while NBP improved to caa2 from caa3. Moody’s shifted the outlook for all banks’ ratings from positive to stable, aligning them with Pakistan’s sovereign outlook.
The upgrades follow Moody’s recent decision to lift Pakistan’s sovereign rating to Caa1 from Caa2, citing an improving external position and progress under the IMF Extended Fund Facility (EFF) program. According to Moody’s, the banks’ upgrades reflect three main factors: a more stable operating environment, improved government support capacity, and banks’ resilient financial performance.
Moody’s highlighted Pakistan’s progress in reforms and external financing. However, the agency noted that foreign exchange reserves remain insufficient to fully meet external obligations. Continuous progress with IMF reforms is seen as critical to sustaining stability.
Pakistani banks benefit from reduced inflation, down from 30.8% in 2023 to 12.6% in 2024, and the State Bank of Pakistan’s interest rate cuts from 22% to 11% over the past year. These factors are expected to lower problem loans, reduce borrowing costs, and boost credit demand, particularly among SMEs and consumers. Still, profitability faces pressure due to tighter interest margins, and asset risks remain elevated.
Bank-Wise Details
National Bank of Pakistan (NBP): Ratings upgraded to Caa1, with BCA improved to caa2. Strong deposit funding and income growth were noted, though high nonperforming loans (14.2%) and modest capital buffers remain challenges.
Habib Bank Limited (HBL): Ratings raised to Caa1, supported by liquidity buffers and a strong deposit profile. Nonperforming loans stand at 5.3%, with capital adequacy still modest.
United Bank Limited (UBL): Ratings upgraded to Caa1. Despite high nonperforming loans at 14.7% due to Silk Bank’s acquisition, strong deposit stability and liquidity buffers offset risks.
MCB Bank Limited (MCB): Upgraded to Caa1, supported by strong profitability (1.7% ROA in Q1 2025), stable deposits, and good liquidity, though risks remain from high sovereign exposure.
Allied Bank Limited (ABL): Ratings moved to Caa1, reflecting low nonperforming loans at 1.6%, strong deposits, and liquidity buffers. However, modest capital buffers remain a weakness.
Moody’s noted that further upgrades are possible if Pakistan’s economic environment and sovereign credit profile strengthen further. Conversely, downgrades could occur if sovereign ratings fall or banks’ financial performance weakens.
