Moody's has revised Pakistan's banking system outlook from 'positive' to 'stable', citing a gradual recovery in the operating environment. According to Dawn and Business Recorder, this change aligns with the government's stable outlook (Caa1) due to banks' significant holdings in government securities, which constitute about half of their total assets. Moody's forecasts a real GDP growth of 3.5% for 2026, up from 3.1% in 2025, supported by ongoing reforms and a strengthening external position. However, the agency highlights persistent challenges such as asset quality and profitability issues, with non-performing loan ratios spiking after the removal of the advances-to-deposits ratio tax in early 2025. The Tribune adds that despite strong capital buffers, the banking sector's heavy exposure to government debt remains a key risk, linking its credit strength directly to the sovereign's fiscal health.