Key Takeaways for Depositors and Investors

In a significant vote of confidence, Moody’s Ratings upgraded the long-term deposit ratings of five of Pakistan’s leading banks on Tuesday, August 20, 2025.This follows a recent upgrade to the contry’s sovereign rating, signaling a broader improvement in Pakistan’s economic outlook. The upgraded banks are Allied Bank Limited (ABL), Habib Bank Ltd (HBL), MCB Bank Limited (MCB), national Bank of Pakistan (NBP), and united Bank Ltd (UBL).

details of the Ratings upgrade

Moody’s raised the ratings to Caa1 from Caa2. Alongside the deposit rating upgrades, the agency also improved the banks’ Baseline Credit Assessments (BCAs) and Adjusted BCAs. specifically, ABL, HBL, MCB, and UBL saw their BCAs upgraded to Caa1 from Caa2, while NBP’s BCA rose to Caa2 from Caa3. The outlook for all five banks’ long-term deposit ratings was revised to “stable” from “positive.”

These upgrades aren’t simply symbolic. They reflect Moody’s assessment of a more favorable operating surroundings in Pakistan, increased government capacity to support its banks if needed, and the banks’ demonstrated ability to weather economic challenges.

Macroeconomic Factors Driving the Improvement

The improvements are largely tied to Pakistan’s strengthening external position. This stability benefits banks heavily invested in government securities – which account for roughly half of their total assets – and also their broader operations serving businesses and consumers. A more stable macroeconomic climate reduces risk and fosters growth.

Crucially, Pakistan has seen a significant decline in inflation, dropping from 30.8% in 2023 to 12.6% in 2024.This disinflationary trend, coupled with a series of interest rate cuts by the State Bank of Pakistan (from a peak of 22% in May 2024 to 11% in May 2025), is expected to ease the burden of borrowing, stimulate credit demand, and reduce the number of non-performing loans, particularly within the Small and Medium Enterprise (SME) and consumer sectors.

Bank Performance and Remaining Challenges

Pakistani banks have shown resilience, maintaining stable deposit bases, robust liquidity buffers, and solid earnings. However, Moody’s cautions that profitability could be impacted by shrinking net interest margins as interest rates fall. asset risks also remain a concern, given the ongoing fragility of the operating environment and Pakistan’s continued vulnerability to liquidity and external shocks.

Despite these challenges, the “stable” outlook reflects solid loan-loss provisions and capital buffers held by the banks. It also signals an expectation of continued improvement, driven by disinflation and adequate liquidity, even though a ample portion of bank assets remains tied to government securities.

Future Outlook and Potential Risks

Moody’s indicated that further upgrades are possible if Pakistan’s economic and governmental credit profiles strengthen further, and if banks continue to demonstrate strong performance. Conversely, downgrades could occur if Pakistan’s sovereign rating is cut, or if banks experience deterioration in asset quality, profitability, or capital adequacy.

Bank Ratings Summary – August 20, 2025