- Working surroundings enhancing, however solely steadily.
- Asset high quality and profitability challenges stay.
- Banks’ efficiency seen secure over 12-18 months.
Moody’s Scores has modified Pakistan’s banking system outlook to secure from constructive, saying the working surroundings is recovering “however solely steadily” because the financial and monetary outlook improves and the exterior place strengthens.
Komal Kenneth Shakeel, Head of Partnerships and Collaborations at Ignite, mentioned the transfer reads much less like a recent improve cycle and extra like a sign that volatility has eased with out a robust progress push behind it.
“Moody’s determination to revise Pakistan’s banking outlook from constructive to secure is basically a sign of stabilisation with out acceleration,” mentioned Shakeel, who’s an economist.
In its outlook, Moody’s Scores mentioned banks’ monetary efficiency is anticipated to stay secure over the following 12-18 months, at the same time as lenders proceed to face asset high quality and profitability challenges.
The company added that its view of the sector stays carefully aligned with the sovereign as a result of native banks maintain substantial authorities securities, round half of whole banking property, conserving the system extremely delicate to authorities credit score energy.
Moody’s forecast actual GDP progress of round 3.5% for 2026, up from 3.1% in 2025, and mentioned easing coverage charges and decrease inflation ought to assist credit score demand. It added that margins are anticipated to stay regular after declining following charge cuts.
Nevertheless, Moody’s flagged the dimensions of sovereign publicity as a key vulnerability, noting that banks’ holdings of presidency securities quantity to round half of whole property and about 9.4 instances their fairness. The company additionally mentioned the report doesn’t announce a credit standing motion.
Shakeel mentioned the broader macro image has improved, pointing to decrease inflation and stronger remittance inflows, which she argued are supporting financial institution deposits, overseas trade reserves and general monetary stability.
Nevertheless, she cautioned that structural pressures persist, together with a sizeable fiscal deficit, heavy curiosity funds relative to authorities revenues, and banks’ continued desire for sovereign paper over private-sector lending.
“Moody’s outlook displays a easy message: the disaster has eased, however the restoration is shallow and nonetheless depending on exterior inflows slightly than robust home progress,” she mentioned.
Former adviser to the Ministry of Finance Dr Khaqan Najeeb described the shift as a transfer in the direction of steadiness, not energy. “Moody’s outlook on Pakistan’s banking sector has shifted to secure, pointing to a gradual restoration within the working surroundings slightly than a transparent return to energy,” he mentioned, including that the sector stays “structurally tilted towards low-risk steadiness sheets,” limiting private-sector intermediation.
He mentioned the anticipated pickup in credit score progress in 2026 displays enhancing macro situations and decrease borrowing prices after disruption linked to the withdrawal of the ADR-linked tax.
He cautioned that stability continues to be anchored extra in capital buffers and sovereign publicity than in a broad-based strengthening of underlying credit score fundamentals.
The outlook change follows Moody’s sovereign improve in August 2025 to Caa1 from Caa2 with a secure outlook, tied to enhancing monetary situations underneath an Worldwide Financial Fund (IMF) programme.
AAH Soomro, an unbiased funding and financial analyst, mentioned the sovereign-heavy asset combine means actions in sovereign credit score situations carry direct implications for native lenders.
“This displays stronger monetary well being as banks principally maintain sovereign securities, which are actually reflecting increased credit score rankings of the nation,” he mentioned.
“Native banks are nicely capitalised with enough risk-based capital to satisfy deposits and debtors’ necessities. In the long run, this reduces borrowing prices for the federal government and personal sector debtors,” he added.
