Banking spread dips by 24bps to 7.11pc during June-Aug 2008

KARACHI - The average spread of the banking sector declined by 24bps to 7.11 percent during the first eight months (Jun-Aug) of 2008 from the average spread of 7.35 percent recorded in Jan-Aug of 2007.

According to available data on banking sector spread released by SBP, in 8 months of 2008, average lending rates of banks operating in Pakistan have gone up by 46bps to 11.75 percent from 11.29 percent while deposits rates have increased by 70bps to 4.64 percent from 3.94 percent in 8-months of 2007.

Banking sector spread for the month of Aug 2008, on the other hand, rose by 12bps to 7.35 percent up from 7.23 percent seen in Aug 2008. This spreads were anticipated to go up in light of the high KIBOR prevailing in the recent months, however, deposit have kept up pace more or less on account of the liquidity crunch in the country.

Lending rates of all banks operating in Pakistan rose by 156bps from 12.91 percent to 11.35 percent while deposits rates offered by banks surged by 144bps from 4.12 percent in Aug 2007 to 5.56 percent in Aug 2008. Going forward, given the general economic slowdown, the (real) credit offtake is expected to remain on the lower side. Spreads while benefiting from higher KIBOR, would remain under pressure from higher cost of deposits due to the present liquidity crunch. We expect spreads to float in the range of 6.9-7.1 percent during 2008.