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Why Moody’s Upgraded Five Pakistani Banks to Caa1 in August 2025

Moody’s raised the long-term deposit ratings of five Pakistani banks from Caa2 to Caa1 in August 2025, while shifting their outlooks from positive to stable.
From TheFinanceBase Team3 min to read
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On August 19, 2025, Moody’s upgraded the local- and foreign-currency long-term deposit ratings of Allied Bank, Habib Bank, MCB Bank, National Bank of Pakistan and United Bank from Caa2 to Caa1. At the same time, it changed each bank’s outlook from positive to stable. The upgrade was one notch; the outlook change was a separate move, not another upgrade.

Which Pakistani banks were upgraded?

The August 19, 2025 action covered the long-term deposit ratings in both local and foreign currency for these five banks:

Bank Long-term deposit ratings Outlook Reported BCA and adjusted BCA movement
Allied Bank Limited (ABL) Caa2 to Caa1 Positive to stable caa2 to caa1
Habib Bank Limited (HBL) Caa2 to Caa1 Positive to stable caa2 to caa1
MCB Bank Limited (MCB) Caa2 to Caa1 Positive to stable caa2 to caa1
National Bank of Pakistan (NBP) Caa2 to Caa1 Positive to stable caa3 to caa2
United Bank Limited (UBL) Caa2 to Caa1 Positive to stable caa2 to caa1

The rating and outlook movements are reported by Business Recorder. The BCA and adjusted BCA changes were also reported by Business Recorder. NBP’s BCA movement differed from the other four banks: it rose from caa3 to caa2, while theirs moved from caa2 to caa1. These assessments should not be confused with the banks’ deposit ratings.

Why did Moody’s upgrade the ratings?

Business Recorder’s August 20, 2025 report attributed three drivers to Moody’s: a better operating environment in Pakistan, increased government capacity to support banks following the sovereign rating upgrade, and resilient performance by the banks themselves. The report quoted Moody’s as saying the country’s Macro Profile had been raised to “Very Weak+” from “Very Weak.”

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“Our decision to upgrade Pakistani banks’ ratings reflects (1) the country’s improving operating environment, as captured by our raising of its Macro Profile for Pakistan to “Very Weak+” from “Very Weak”; (2) the Government of Pakistan’s improved capacity to support the banks in case of need, as indicated by the sovereign rating upgrade; and (3) banks’ own resilient financial performance”.

This statement is quoted by Business Recorder; the available source is a news report, not Moody’s original rating-action release. The contemporaneous sovereign move was an upgrade from Caa2 to Caa1, which reporting linked to improvement in Pakistan’s external position and progress on reforms under its IMF program.

What does a stable outlook mean after the upgrade?

The deposit rating and outlook communicate different things. The rating applies to the credit risk of the rated deposit obligation; the outlook is a separate forward-looking indication. In this action, Moody’s raised the ratings but changed the outlooks from positive to stable. Stable therefore describes the outlook after the action—it is not a second rating increase or a promise that the rating will remain unchanged.

The reported stable outlook was consistent with Pakistan’s sovereign outlook and partly reflected loan-loss provisions and capital buffers. The available reporting does not provide Moody’s full methodology or a specific outlook time horizon, so the outlook should not be read as a precise forecast.

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How was the action connected to IMF progress?

The August 2025 bank action was reported in the context of progress under Pakistan’s IMF program and the sovereign rating upgrade. A later IMF milestone should be kept separate: on May 8, 2026, the IMF announced completion of Pakistan’s third Extended Fund Facility (EFF) review and second Resilience and Sustainability Facility (RSF) review. The decisions allowed disbursements of about US$1.1 billion under the EFF and about US$220 million under the RSF, according to the IMF announcement. Those 2026 reviews occurred after the rating action and were not its cause.

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What the Caa1 upgrade does—and does not—show

Caa1 was an improvement from Caa2, but the change alone is not an unqualified signal of financial strength. It records a one-notch improvement in Moody’s assessment of these deposit obligations against the previous rating. The separate BCA movements indicate that NBP’s reported assessment change was not identical to those of the other four banks.

The available reports establish the August 2025 action and its stated rationale, but do not establish whether any of these ratings changed afterward. They also do not provide a complete current rating table or Moody’s original release. Accordingly, these grades describe the reported action on August 19, 2025, not a verified rating status as of October 8, 2026.

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