Pakistan’s continuous stay ‘grey list’ is credit negative for banks: Moody’s
ISLAMABAD: Credit rating agency Moody, on Thursday termed Pakistan’s continued presence on the Financial Action Task Force (FATF) grey list as ‘credit negative for the country’s banks.
A report issued by the credit rating agency stated that the Financial Action Task Force (FATF), an inter-governmental body tasked with setting global framework requirements around anti-money-laundering, counterterrorist financing and other related threats to the international financial system, announced that Pakistan (B3 stable) would remain on its list of jurisdictions under increased monitoring, along with 17 other countries, after failing to complete a June 2018 action plan by the assigned deadlines.
The announcement is credit negative for Pakistani banks, noted Moody’s because it raises questions about potential additional restrictions relating to banks’ foreign-currency clearing services, as well as their foreign operations.
Banks’ profitability risks being constrained as a result of increased compliance and operational costs.
Pakistan, which has been presenting its progress to FATF every four months since the agreement of the action plan, will remain on the list until at least June 2020, when the next evaluation will take place.
The credit rating agency further stated that the FATF has warned that it will urge member countries to increase their attention when conducting business transactions with Pakistan if the country’s government, regulatory body and other stakeholders of the financial system fail to complete the action plan, which emphasizes combating terrorist financing, by June 2020.
“Should they fail to do so, international financial institutions could curtail their interactions with Pakistani banks and other financial companies, including terminating correspondent banking relationships.