Moody;s downgrades Pakistans outlook on Banks...

Society Pakistan & World Affairs
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Thanks to Musharaf and his “enlightened” running of the economy and the political situation…
Although, not alls doom anf gloom…
http://www.dawn.com/2007/12/14/ebr2.htm

Moody’s downgrades outlook for banks

KARACHI, Dec 13: The outlook for Pakistani banks was rated negative by Moody’s on Thursday, said a report of the rating agency.

The rating had been downgraded due to “underlying risks faced by banks in the current, unfavourable political environment”, it said. It did, however, say that the banking system should prove to be relatively resilient in the short-term, but may be tested if the political unrest prevails over a longer period.

Nondas Nicolaides, Assistant Vice-President, analyst and author of the report, wrote: “The operating environment remains somewhat challenging in light of recent political events. Investor and business confidence have been somewhat impaired and caused some flight of capital by foreign investors away from the local equity markets.”

The analyst observed that an extended period of political uncertainty may affect new projects and deter foreign investors, which would have a knock-on effect on future loan growth rates.

Nevertheless, Moody’s noted that the efficiency of Pakistan’s financial system continues to improve. Privatisation and consolidation were paving the way for increased competition and efficiency, as well as driving more viable financial fundamentals, improving industry practices and enabling banks to penetrate previously untapped rural areas.

Credit growth is also strong, significantly boosting banks’ bottom line. “Most banks’ profitability indicators now compare favourably internationally, and in fact are commensurate with those of higher-rated banks in other markets,” says Nicolaides. Capitalisation is improving on the back of good profitability and an influx of fresh capital via rights and subordinated debt issues. This bodes well for the solvency profile of Pakistani banks, he predicts.

Problematic exposures remain high, however. Although Moody’s recognises the noticeable improvements that the rated banks and the banking system as a whole have achieved on this front, the level of gross NPLs (7.1pc as of June 2007) is still sizeable by international standards.

Furthermore, whilst the rating agency regards the banks’ increasingly enhanced and diversified earnings base as a positive rating driver, it cautions that the new lending remains unseasoned and untested in a possible downturn of the economic cycle.

Efforts are being made to enhance regulatory oversight, and the State Bank of Pakistan is working towards establishing a well-recognised system of banking supervision on par with international best practices, he observed in the report. That said, full implementation of more stringent corporate governance regulations by all banks could prove challenging.

Moody’s notes that the country will also have to work towards further modernising its banking infrastructure.—Reuters

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Re: Moody;s downgrades Pakistans outlook on Banks…

agreed all is not doom and gloom, the instability was definitely going to lead to economic impact, just like the stability in past and the right decisions helped raise the debt ratings. the good thing is that its long term instability can be an issue. With Kiyani fully focused on the terrorism now, that should ease up.

so challenges remain and much needs to be done, but its good to celebrate the positive news and successes as well. Below I have just highlighted some positive news from this story, and since we all think of moodys as a credible source I have added a story from a year ago that mayu make us feel a little better about the economic performance of the country.

here is an old story..just from a year ago,

http://www.iht.com/articles/2006/03/15/bloomberg/sxcredit.php

ISLAMABAD: Pakistan’s credit rating outlook was raised Wednesday to “positive” by Moody’s Investors Service, citing economic growth and remittances from overseas workers.

Moody’s raised its outlook on Pakistan’s sovereign B2 foreign currency debt rating, which is five rungs below investment grade and the same as Indonesia’s, from “stable.”

“We remain encouraged by the strong pick-up in GDP growth and the continuing decline in the domestic and external debt burdens,” the Moody’s statement said.

Further declines in sovereign debt and a more stable domestic and regional environment could improve the country’s rating, the statement added.

Pakistan’s $100 billion economy is forecast to expand 7 percent in the year to June 30 after growing 8.4 percent in the previous 12 months, the fastest pace in 20 years

A rating increase would allow the government of Prime Minister Shaukat Aziz, which is planning to float foreign currency bonds later this year, to sell the debt at lower cost and use the proceeds to finance the government spending needed to spur growth.

"This is good news, which means we are now ready for a further upgrade,"Ashfaque Hasan Khan, an economic adviser to the Pakistani government, said in an interview.

“This shows the rating agency’s confidence in the Pakistan economy and now we will get a good response when we go to international markets.”

Pakistan’s foreign currency bond issue will be the country’s third such debt sale in more than two years. It will market the issue to investors in United States, Asia, Europe and the Middle East, Khan said.

Pakistan’s government also intends to sell an additional 15 percent share in Oil & Gas Development, the nation’s biggest state-owned energy explorer, to overseas and domestic investors in 2006.

Standard & Poor’s raised its outlook on Pakistan’s B+ foreign currency debt rating, or its fourth non-investment grade, to “positive” from “stable” in November.

The increase in the nation’s ratings outlook will improve Pakistan’s overseas image and help the government to sell foreign currency bonds, analysts said.

“Pakistan is becoming more attractive to overseas investors,” said Mohammed Sohail, director of research at Jahangir Siddiqui Capital Markets in Karachi.

“Despite a high inflation rate and global oil prices, the economy is maintaining its growth momentum.”