Pakistan in “Gray list” of Moody’s is credit negative for Banks

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Pakistan in “Gray list” of Moody’s

Global watchdog Financial Action Task Force (FATF) said last week that Pakistan would remain on the list, expressing concern it had not completed an agreed-upon action plan, and giving it until June to try to so.

If Pakistan doesn’t meet the FATF’s requirements to curb any chances of the economic system to be used for terror financing or concealment.

it could join Iran and North Korea on the worldwide watchdog’s blacklist. Pakistan in gray list of moody’s in 2020.

grey list- Moody's
Pakistan’s inclusion on ‘grey list’ is credit negative for banks – Moody’s

Pakistan’s inclusion on ‘grey list’ is credit negative for banks – Moody’s

Banks’ profitability risks being constrained as a result of increased compliance and operational costs, says Moody. Pakistan in gray list of moody’s in 2020.

Credit rating agency Moody, has termed Pakistan’s continued presence on the Financial Action Task Force (FATF) grey list as ‘credit negative’ for the country banks.

“The announcement is credit negative for Pakistani banks because it raises questions on potential additional restrictions concerning banks’ foreign-currency clearing services, also as their foreign operations,” said Moody’s Credit Outlook on Thursday.

“Banks’ profitability risks being constrained as a result of increased compliance and operational costs,” it said.

FATF

The intergovernmental body on Friday gave Pakistan until June 2020 to enhance its anti-terrorism financing measures.

“The FATF strongly urges Pakistan to swiftly complete its full action plan by June 2020,” the worldwide body said during a statement issued at the conclusion of plenary meeting in Paris. Pakistan in gray list of moody’s in 2020.”

Moody said that if Pakistan did not implement the FATF Action Plan, international financial institutions could curtail their interactions with Pakistani banks and other financial companies, including terminating correspondent banking relationships.

“This successively would further constrain banks’ ability to get business and end in higher compliance costs.”

Crucial For Pakistani Banks

The agency highlighted that Pakistan’s improving, ‘but still-weak,’ compliance with global anti-money-laundering and combating terrorist financing standards, both by Pakistani banks .

therefore the country’s authorities, means banks still risk losing access to foreign-currency clearing services, which is crucial for Pakistani banks because it allows them to process cross-border payments for clients.

“Clearing in US dollars is especially important given Pakistan’s high import and export economic activity, also because the incontrovertible fact that an outsized proportion of international payments are made during this currency.”

“That said, this risk has thus far not crystallised within the jurisdictions that are placed on the increased monitoring list,” Moody’s added.

 

 

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