Banking spreads at 11 years low

KARACHI: Banking spreads have contracted to 5.12 percent in January 2016 as compared with 5.19 percent in the previous month.

As per the latest numbers released by the State Bank of Pakistan the banking sector spreads show the lowest numbers observed in the past 11 years.

The pronounced fall in weighted average lending rate was the prime factor for the compression in line with a drop in three-month KIBOR, according to a research report issued by Shajar Securities on Wednesday.

Lending yield on fresh disbursement faced a marginal dip of 13 basis points Month on Month (MoM) to 7.15 percent, which is below the average yield on 5-year Pakistan Investment Bond (PIB) of 8 percent.

The cost of fresh deposits (COD) has fallen by 48 basis points, expanding fresh spreads to 3.05 percent against 2.70 percent recorded in December 2015. The fall in COD was expected to align it with the trend, the report said.

The credit spread (Fresh Lending Yield - KIBOR) remained constant MoM at 0.75 percent, the lowest in one year, reflecting increased risk appetite of the banking sector and the urge to lend.

Going forward, the report estimated marginal reduction in lending yield as the banks may reduce their credit spreads to participate in China-Pakistan Economic Corridor related financing / attract good borrowers.