SBP injects over Rs300bn into market; Moody’s affirms ratings to five banks

Credit rating agency changes outlook of Allied Bank, Habib Bank, MCB Bank, National Bank and United Bank to stable from negative

Credit rating agency changes outlook of Allied Bank, Habib Bank, MCB Bank, National Bank and United Bank to stable from negative

State Bank of Pakistan (SBP) injected Rs 308.8 billion into the money market for eight days as reverse repo purchase through its open market operation.

In a statement issued in Karachi, the central bank said that six bids of Rs 334.8 billion were offered, of which four of Rs 308.8 billion were accepted. The rate of return accepted is 13.31 percent per annum.

On the other hand, Moody’s Investors Service has affirmed the B3 long-term local currency deposit ratings of five Pakistani banks and changed the outlook to stable from negative. The banks include the Allied Bank Limited, Habib Bank Limited, MCB Bank, National Bank of Pakistan and the United Bank Limited.

On December 2, the rating actions follow Moody’s decision to affirm the B3 rating for the federal government and change the outlook on the sovereign rating to stable from negative and reflect reduced external vulnerability risks and ongoing fiscal reforms. The rating actions reflect improvements in the operating environment in Pakistan and in the sovereign credit profile.

BANKS’ OUTLOOKS TO STABLE: According to the service, the primary driver of Moody’s decision to change the five banks’ outlooks to stable was the extensive interconnectedness between their balance sheets and sovereign credit risk, owing to the banks’ high exposures to the government securities.

According to Moody’s estimates as of the latest available information, the five banks’ direct exposure to government credit risk stood at around 10.2x of Tier-1 capital for ABL, 8.1x for HBL, 6.4x for MCB, 9.5x for NBP and 6.8x for UBL. The high direct exposure to the government credit risk, in addition to the primarily Pakistan focus of their operations, links the banks’ credit profile to that of the government.

As a result, the improvements in the operating environment and in the sovereign credit profile have eased pressures on banks as well. The stable outlook assigned to the banks’ local currency deposit ratings also reflects Moody’s expectation that the government’s capacity to support banks in case of need will not deteriorate.

B3 BOND RATING: This was reflected by the stable outlook on Pakistan’s sovereign B3 bond rating which was driven by reduced external vulnerability risks on the back of policy adjustments and currency flexibility, as well as ongoing fiscal reforms that will mitigate risks related to debt sustainability and government liquidity. The local currency deposit ratings of NBP and HBL incorporate one notch of support uplift from their caa1 baseline credit assessments.

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