Foreign currency ratings affirmed
Limassol, December 10, 2010 -- Moody's Investors Service has today downgraded by one notch the global
local-currency (GLC) deposit ratings and standalone bank financial
strength ratings (BFSRs) of five Pakistani banks: Allied Bank Ltd
(ABL), Habib Bank Ltd (HBL), MCB Bank Ltd (MCB), National
Bank of Pakistan Ltd (NBP) and United Bank Ltd (UBL).
At the same time, Moody's has affirmed the foreign-currency
deposit ratings assigned to these banks at B3/Not Prime (Stable outlook).
The foreign-currency deposit ratings remain constrained by Pakistan's
B3 (Stable outlook) country ceiling for foreign-currency deposits.
Please see a full list of the rating actions below.
RATINGS RATIONALE
Moody's notes that the rating downgrades are primarily driven by the Pakistani
banks' growing exposure to (B3 rated) Pakistan government securities
and government-related lending, as a consequence of limited
private sector lending opportunities within the country's deteriorating
macroeconomic conditions. Moody's estimates that as of end-June
2010, the rated Pakistani banks' total exposure to sovereign-related
risk assets had reached 38% of their total assets, from 24%
in 2008, representing a material exposure concentration and raising
the banking system's susceptibility to event risk at the B3 sovereign
level. While the financial fundamentals of Pakistani banks have
shown relative resilience during adverse conditions in previous years,
their inability to curb their rising overall exposure to the government
sector highlights the limitations in depth and diversification of the
country's banking system. Although Moody's considers
Pakistani rated banks' capitalisation levels as currently adequate,
the high, and growing, exposure concentration to the B3-rated
sovereign -- in conjunction with the prevailing weak macroeconomic
conditions -- could challenge solvency levels. Driven
by these considerations, Moody's has narrowed the gap between
the Pakistani banks' ratings and the government rating (B3/stable).
As a result of the heavy flooding in Pakistan earlier this year,
Moody's expects low economic growth and subdued loan demand from
the private sector to prevail, leading to a further rise in banks'
sovereign-related exposures, primarily in the form of T-Bills.
At the same time, the sovereign structural subsidy-related
debt arrears, mainly in the utility and commodity sectors,
are unlikely to be settled in the near term, and such arrears will
continue to exert further pressure on the corporate sector and,
as a result, on the Pakistani banking system's asset quality.
Despite these growing challenges, Moody's believes that certain
factors continue to support Pakistani banks' ratings being positioned
at a higher level than the government rating. In particular,
the rated banks have minimal reliance on sensitive market-funding,
and instead display stable customer deposit-funded profiles that
have shown a degree of stability during previous shocks or crises that
Pakistan has experienced. Furthermore, Moody's believes
that the rated banks' overall financial fundamentals remain relatively
good, with profitability and capitalisation sufficiently absorbing
the increased credit and impairment costs of the past two years,
as stressed by the deterioration in asset quality, stemming from
the challenging macroeconomic conditions.
Moody's decision to maintain the negative outlook on the banks' standalone
and long-term local-currency deposit ratings reflects the
Pakistani banking sector's still growing exposure concentration
to the sovereign, and on-going vulnerability to macroeconomic
deterioration, which could negatively impact both the sovereign
and the country's banking system.
The rating actions are as follows:
-ABL's GLC deposit ratings have been downgraded by one notch to
B1/Not Prime, from Ba3/Not Prime and its standalone BFSR to E+
(mapping to B1), from D-. The local currency deposit
ratings carry a negative outlook.
-HBL's GLC deposit ratings have been downgraded by one notch to
B1/Not Prime, from Ba3/Not Prime and its standalone BFSR to E+
(mapping to B1), from D-. The local currency deposit
ratings carry a negative outlook.
-MCB's GLC deposit ratings have been downgraded by one notch to
Ba3/Not Prime, from Ba2 / Not Prime and its standalone BFSR to D-
(mapping to Ba3) from D. The ratings carry a negative outlook.
-NBP's GLC deposit ratings have been downgraded by one notch to
Ba3/Not Prime, from Ba2/Not Prime and its standalone BFSR to D-
(mapping to Ba3), from D. The ratings carry a negative outlook.
-UBL's GLC deposit ratings have been downgraded by one notch to
B1/Not Prime, from Ba3/Not Prime and its standalone BFSR to E+
(mapping to B1), from D-. The local currency deposit
ratings carry a negative outlook.
The principal methodologies used in this rating were "Bank Financial
Strength Ratings: Global Methodology", published in
February 2007, and "Incorporation of Joint-Default
Analysis into Moody's Bank Ratings: A Refined Methodology",
published in March 2007.
The last rating action for all Pakistani rated banks was implemented on
2 September 2010, when Moody's changed the outlook on their
local currency deposit ratings and standalone ratings to negative,
from stable.
Headquartered in Lahore, Pakistan, Allied Bank had total assets
of USD4.8 billion as of the end of September 2010.
Headquartered in Karachi, Pakistan, Habib Bank had total assets
of USD10.1 billion as of the end of September 2010.
Headquartered in Lahore, Pakistan, MCB Bank had total assets
of USD6.3 billion as of the end of September 2010.
Headquartered in Karachi, Pakistan, National Bank of Pakistan
had total assets of USD10.9 billion as of the end of September
2010.
Headquartered in Karachi, Pakistan, United Bank had total
assets of USD7.6 billion as of the end of September 2010.
REGULATORY DISCLOSURES
Information sources used to prepare the credit rating are the following:
parties involved in the ratings, and public information.
Moody's Investors Service considers the quality of information available
on the issuers or obligation satisfactory for the purposes of maintaining
a credit rating.
The ratings for Habib Bank Ltd, National Bank of Pakistan and United
Bank were initiated by Moody's Investors Service and were not requested
by the issuers.
These rated entities participated in the credit rating process.
The rated entities or their related third party, if any, provided
the rating committee access to the books, records and other relevant
internal documents of the rated entities.
The rating has been disclosed to the rated entities or its designated
agents and issued with no amendment resulting from that disclosure.
Moody's Investors Service may have provided Ancillary or Other Permissible
Service(s) to the rated entity or its related third parties within the
three years preceding the Credit Rating Action. Please see the
ratings disclosure page www.moodys.com/disclosures on our
website for further information.
Moody's adopts all necessary measures so that the information it uses
in assigning a credit rating is of sufficient quality and from sources
Moody's considers to be reliable including, when appropriate,
independent third-party sources. However, Moody's
is not an auditor and cannot in every instance independently verify or
validate information received in the rating process.
Please see ratings tab on the issuer/entity page on Moodys.com
for the last rating action and the rating history.
The date on which some Credit Ratings were first released goes back to
a time before Moody's Investors Service's Credit Ratings were fully digitized
and accurate data may not be available. Consequently, Moody's
Investors Service provides a date that it believes is the most reliable
and accurate based on the information that is available to it.
Please see the ratings disclosure page on our website www.moodys.com
for further information.
Please see the Credit Policy page on Moodys.com for the methodologies
used in determining ratings, further information on the meaning
of each rating category and the definition of default and recovery.
Limassol
Christos Theofilou, CFA
Analyst
Financial Institutions Group
Moody's Investors Service Cyprus Ltd.
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Limassol
Mardig Haladjian
General Manager
Financial Institutions Group
Moody's Investors Service Cyprus Ltd.
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Moody's downgrades the local currency ratings of Pakistani banks; outlook negative