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Banks (Finance)

Moody's Upgrades Ratings of Five Pakistani Banks to Caa1

Strategic Insights

— 2 min read

Moody's Investors Service has taken a bold step in upgrading 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). The ratings were upgraded to Caa1 from Caa2, reflecting an improving operating environment, the government's improved capacity to support the banks, and the banks' resilient financial performance. The outlook on the long-term deposit ratings of all banks has been changed to stable from positive.

Key Takeaways:

  • The upgrade of the ratings reflects the improving operating environment in Pakistan, with the country's macro profile upgraded to "Very Weak+" from "Very Weak".
  • The government's improved capacity to support the banks, as indicated by the sovereign rating upgrade, is also a key factor in the upgrade.
  • The banks' resilient financial performance, including stable deposit-based funding, high liquidity buffers, and solid asset quality positions, has contributed to the upgrade.
  • National Bank of Pakistan (NBP) has been upgraded due to its improving operating conditions, strong deposit-funded profile, and enhanced earnings generation capacity.
  • Habib Bank Ltd. (HBL) has been upgraded due to its good liquidity buffers, strong deposit-funded profile, and solid asset quality position.
  • United Bank Ltd. (UBL) has been upgraded due to its stable deposit base, strong liquid buffers, and moderate profitability.
  • MCB Bank Limited (MCB) has been upgraded due to its strong profitability, stable deposit base, and good liquidity buffers.
  • Allied Bank Limited (ABL) has been upgraded due to its relatively low stock of problem loans, stable deposit-based funding, and ample liquid buffers.

Statistics:

  • The Government of Pakistan's local and foreign currency issuer and senior unsecured debt ratings were upgraded to Caa1 from Caa2.
  • The sovereign rating upgrade reflects Pakistan's improving external position, supported by its progress in reform implementation under the IMF Extended Fund Facility (EFF) program.
  • Pakistani banks hold around 50% of government securities, which account for half of total banking assets.
  • The decline in inflation from 30.8% in 2023 to 12.6% in 2024, and the series of rate cuts by the State Bank of Pakistan (SBP), are expected to support a drop in problem loans, reduce borrowing costs, and stimulate credit demand.
  • The stable outlook on all banks' long-term deposit ratings is in line with the stable outlook on Pakistan's government, and reflects solid loan loss provisions, capital buffers, and continued improvements in the operating environment.

Sources:

  • Moody's Investors Service (Moody's)
  • "Moody's Ratings upgrades Pakistan's ratings to Caa1; changes outlook to stable from positive", Moody's Investors Service, 13 August 2025
  • "Moody's Ratings upgrades Pakistani banks' ratings to Caa1; changes outlook to stable from positive", Moody's Investors Service, 13 August 2025
  • "Banks" methodology, Moody's Investors Service, November 2024
  • "Rating Methodologies" page, Moody's Investors Service

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