Karachi August 20 2025: Moody’s Ratings (Moody’s) has upgraded to Caa1 from Caa2 the local and foreign-currency long-term deposit ratings of five Pakistani banks: Allied Bank Limited (ABL), Habib Bank Ltd. (HBL), MCB Bank Limited (MCB), National Bank of Pakistan (NBP) and United Bank Ltd. (UBL). We have also upgraded the Baseline Credit Assessments (BCAs) and Adjusted BCAs for ABL, HBL, MCB and UBL to caa1 from caa2, and of NBP to caa2 from caa3.
The outlook on the long-term deposit ratings of all banks has been changed to stable from positive.
Today’s rating actions follow our decision to upgrade the Government of Pakistan’s local and foreign currency issuer and senior unsecured debt ratings to Caa1 from Caa2, to reflect Pakistan’s improving external position, supported by its progress in reform implementation under the IMF Extended Fund Facility (EFF) program.
Moody’s decision to upgrade Pakistani banks’ ratings reflects (1) the country’s improving operating environment, as captured by our raising of its Macro Profile for Pakistan to “Very Weak+” from “Very Weak”; (2) the Government of Pakistan’s improved capacity to support the banks in case of need, as indicated by the sovereign rating upgrade; and (3) banks’ own resilient financial performance.
The revised Macro Profile score for Pakistan is underpinned by Pakistan’s improving external position, supported by its progress in reform implementation under the IMF Extended Fund Facility (EFF) program.
Nonetheless, Pakistan’s external position remains fragile. Its foreign exchange reserves remain well below what is required to meet its external debt obligations, underscoring the importance of steady progress with the IMF programme to continually unlock financing.
Improvements to Pakistan’s external position contribute to a stable macroeconomic environment, which has a positive impact on Pakistani banks that are significantly exposed to the sovereign through their large holdings of government securities – these account for around half of total banking assets – as well as through their local banking operations and exposure to Pakistani corporates, businesses and retail consumers.
Pakistani banks are also displaying a resilient financial performance, as reflected by their stable, deposit based, funding profile; high liquidity buffers and generally good earnings generating capacity. The decline in inflation from 30.8% for 2023 to 12.6% for 2024 and State Bank of Pakistan’s (SBP) series of rate cuts from the peak of 22% as of May 2024 to 11% as of May 2025 will also support a drop in problem loans, reduce borrowing costs and stimulate credit demand, particularly in the SME and consumer segments. Nonetheless, profitability will face some downward pressure on the back of compressed net interest margins driven by the rate cuts, while asset risks remain elevated as – despite the improvements – operating conditions remain fragile given the government’s high liquidity and external vulnerability risks.
