LAHORE  - The banking spreads have averaged at 6.02 per cent in 1Q2014 versus 6.21 per cent in 1Q2013 and 6.15 per cent in 4Q2013.
As per the latest data released by SBP, quarterly average is lowest since 1Q2005-almost the period of nine years. However, some recovery was observed in fresh banking spreads which increased to 4.78 per cent in 1Q2014 vs. 4.49 per cent in 4Q2013.
On month on month basis, however, banking sector spreads remained stable at 6.05 per cent in March 2014 after touching the 9-year low of 5.97 per cent in January 2014. Decline in spreads was mainly attributed to recent hike in discount rate which was priced in the deposit cost earlier than return on advances. Though overall spreads remained stable, cost of deposit and return on advances declined by 9bps MoM to 5.05 per cent and 11.1 per cent, respectively.
Similarly, fresh banking spreads remained at 4.73 per cent in March 2014, stable month on month. In March 2014, fresh deposit cost declined by 13bps to 5.8 per cent while return on new advances also declined by 13bps MoM to 10.53 per cent.
In comparison to March 2013, monthly spreads are down 19bps despite 50bps higher discount rate. Tightening SBP requirement to pay return on PLS (Profit & Loss Sharing) Saving Account is the main cause of the lower reading.
According to Topline Securities banking analysts, though spreads are at low levels, Net Interest Margins of banks are likely to get support from higher yields on increasing PIB portfolio. To recall, local banks and other investors have invested Rs1.4tn though PIB auctions in 2014 to date. Assuming 60-70 per cent of total Rs1.4tn PIB auction participation was from banks, after tax profits of banking sector would increase by Rs13-15bn. This alone will increase banking sector profits by 11-13 per cent.
Meanwhile, the National Bank of Pakistan (NBP) announced its 1Q2014 result, posting a PAT of Rs3.1bn (EPS: Rs1.48), up 4 per cent YoY on an unconsolidated basis. Earnings came in better than expectation of Rs1.28 per share as the bank booked lower cumulative provisions and write offs in 1Q2014 (Rs975mn for the quarter vs expectation of Rs3.2bn). The bank did not announce any payout alongside the result.
NBP’s Net Interest Income (NII) remained under pressure and declined by 2 per centYoY in 1Q2014 as higher cost of deposits weighed in.