ISLAMABAD: Moody’s Ratings on Monday changed Pakistan’s banking system’s outlook to stable from positive as operating conditions continue to recover ‘only gradually’.

“The operating environment continues to recover, but only gradually, supported by the country’s slowly improving economic and fiscal outlook, and strengthening external position”, the New York-based one of the top three global rating agencies said. “However, banks’ financial performance will be stable over the next 12-18 months as they continue to face asset quality and profitability challenges,” it added.

The bank sector outlook aligns with that of the Government of Pakistan (Caa1 stable), given banks’ substantial holdings of government securities, which account for around half of total banking assets.

“Pakistan’s long-term debt sustainability remains uncertain, because of its still weak fiscal position, high liquidity and external vulnerability risk”, the agency said and estimated real GDP growth of around 3.5pc for 2026, up from 3.1pc in 2025, supported by ongoing reforms that are improving confidence and gradually strengthening economic activity.

Moody’s flags high exposure to govt securities as a key........

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