PSX’s record runs by 150k, market cheers fitch’s bank upgrade

Karachi: The Pakistan Stock Exchange (PSX) hit a historic milestone on Tuesday, with the benchmark KSE-100 Index breaking through the 150,000 barrier for the first time ever. 

The index closed at a record 150,042.03 points, gaining 1,845.61 points or 1.25% from its previous close of 148,196.42.

The rally reflects growing investor confidence, largely driven by recent positive economic forecasts and sovereign credit rating upgrades by global agencies.

Fitch Ratings recently projected Pakistan’s GDP growth to reach 3.5% by 2027, citing an improved macroeconomic environment and declining inflation. Inflation, which peaked at 38% in May 2023, has now dropped to 4.1% as of July 2025. Fitch expects inflation to average around 5% for the rest of the year.

Contributing to the bullish sentiment, Moody’s Investors Service also upgraded Pakistan’s local and foreign currency issuer ratings from Caa2 to Caa1, and similarly raised the rating on the senior unsecured Medium-Term Note (MTN) programme.

These upgrades are supported by ongoing structural reforms, economic stabilisation, and an easing interest rate environment. The State Bank of Pakistan has halved the policy rate to 11% since May 2024, helping revive private-sector credit demand and reduce external pressures.

Fitch also upgraded Pakistan’s Long-Term Issuer Default Rating (IDR) to ‘B-’/Stable in April 2025, citing fiscal consolidation and a more stable external position. Pakistan’s current account is back in surplus, and currency volatility has reduced, further reinforcing confidence in the country’s economic direction.

These developments have had a direct impact on the banking sector. Fitch noted that Pakistani banks are expected to benefit from increased business opportunities as operating conditions improve. The sector’s impaired loan ratio has fallen to 7.1% as of March 2025, down from 7.6% at the end of 2023, while loan growth hit 26% during a period of high inflation.

Despite a narrowing of net interest margins and rising operational costs, the return on average equity in the first quarter of 2025 stood at a solid 20%. Meanwhile, the system’s capital adequacy ratio hit a decade-high of 21%, demonstrating strong internal capital generation.

Liquidity remains a bright spot for Pakistani banks, with customer deposits comprising 65% of total funding and a loan-to-deposit ratio of just 38%. Low deposit dollarisation (around 7%) and minimal balance-sheet leverage continue to act as cushions against financial shocks.

Analysts believe that continued reform momentum and a more stable macroeconomic outlook could lead to further credit expansion in the private sector, which had dropped to just 9.7% of GDP in 2024. However, structural challenges and Pakistan’s still-low sovereign credit rating mean banks’ health remains closely tied to state fiscal performance and reform progress.