- Economic Growth projected at 4.4 percent in 2022
- Banking sector outlook stable
Moody’s Investors Services (Moody’s) has updated its outlook on Pakistan where it project modest recovery in Economic activity in Pakistan with GDP Growth projected at 1.5 percent growth in fiscal year 2021.
Moody’s latest report also highlights Paksitani Bank’s stable outlook backed by economic recovery, solid funding and liquidity .
The Moody’s Report reads:
We expect the economy to return to growth in fiscal 2021, reaching a modest 1.5 percent. Although high frequency indicators suggest that economic activity has started to rebound, restrictions on movements to prevent the spread of the coronavirus will keep economic output below pre-outbreak levels for some time. Growth will, however, accelerate to 4.4 percent in 2022. We project a government deficit of eight percent for 2021, with rising arrears and circular debt in the energy sector also affecting corporates’ repayment capabilities
While Moody’s update on economic recovery is somewhat promising, however, the report also highlight that due to higher fiscal deficit, private-sector lending to grow by five to seven percent in 2021, below inflation expectations of eight percent. Likewise, Interest rates remain at the low end of historical rates, but muted confidence levels will prevent more robust growth.
The report also discussed State Bank of Pakistan’s initiative to bring public under the banking channerl. The State Bank of Pakistan (SBP) has projected around 65 million active bank accounts, with total deposits accounting for 55 percent of GDP, by deploying increased use of mobile bank accounts, QR codes and other digital banking options. A targeted 25 percent market share for Islamic banking by 2023, with an enhanced Shariah governance framework and initiatives to facilitate liquidity management.
Stable Outlook for Banks
The report states that establishment of Pakistan Credit Guarantee Company and Secured Transactions Registry will support banks in achieving the target of housing finance to five per cent of private-sector credit by December 2021, with a subsidized mark-up facilitating banks to achieve this target, initiatives to increase agricultural finance, targeting disbursements of Rs1.8 trillion by 2023 and six million borrowers.
Moody’s expect Bank’s exposure to government remaining high over the mid-term horizon as Pakistani banks will continue funding fiscal deficit of the government. The government’s commitment to eliminate borrowing from the State bank ha also lead to increased reliance on commercial banks for meeting its deficit financing needs.
Moody’s expect a further increase in NPLs of Commerical Banks as the economic slowdown impacts borrowers’ repayment capabilities. The reports state that various sectors will get impacted going onwards including energy, agri-business and sugar, exposures to the SME sector and export-oriented businesses.
Moody’s report also states that due to Banks Reduced capital generation in 2021(due to lower profitability and potential implementation of IFRS 9 accounting standards in 2021) Banks will resort to lower dividend payments and less exposure in risk-weighted assets.
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