Banking Sector Spreads 2MFY10 Review

Average deposit rates slipped by 3bps


The State Bank of Pakistan (SBP) has recently released the figures of lending and deposit rates of the banking during the period of 2MFY10. The average deposit rates slipped by 3bps during the period to 6.07% comparing to the last month of the same year while the average lending rates stood at 13.38% from 13.35% during the period by translating 3bpsMoM increase.

Spreads depicted the increment of 6bps

The interest rate spread depicted the increment of 6bpsMoM to 7.31% comparing to 7.25% during last month. Initially, it was continuously in downtrend since the period of 1MFY09 where it recorded its peak of 7.78%.

Fresh loan spread turned down by 7bps

The interest spread on fresh lending vs. deposits witnessed a decline of 14bps to 6.28% while the interest rates on fresh loans turned down by 7bps to 13.46% along with a cost of fresh deposits who jumped by 7bps to 7.18% during the period. This dwindling trend highlights the risk that maintaining the positive momentum in spreads would be a challenge and spreads could face pressure going forward.

6M KIBOR positioned at 12.19% on average

The average 6-Months KIBOR stood at 12.19% during the period due to the continuation of easing the monetary policy stance by the State Bank of Pakistan (SBP). Initially, the rate touched its peak level of 15.67% during 12MFY09.

Looking Forward

I am expecting the interest rate spreads to remain above the level of 7% in FY10 mainly at the back of recovery of inflation which is likely to keep the interest rates stable in short term to consolidate the lending rates while deposit rates are to remain around the same level mainly at the back of imposition of floor of 5% by SBP on CASA accounts. I am currently maintaining the ‘neutral’ stance on banking sector.