Moody's Upgrades Pakistan Banking Sector Outlook to Stable on Profitability and Liquidity, But Risks Remain

Moody's upgraded its outlook on Pakistan's banking sector from "negative" to "stable" due to banks' solid profitability, stable funding and liquidity.

However, banks remain highly exposed to the government via large holdings of government securities.

Macroeconomic conditions are still weak, with high government liquidity risk and external vulnerability.

Banks' profits will gradually decline to more normalized levels as interest rates and inflation ease from 2023 peaks.

Funding and liquidity remain a strength for Pakistan's banks, which rely largely on stable domestic deposits.