Written as on June 26, 2012
Highlights
• Banking spread stood at 7.07% during May-12, down by 15bpsMoM
• Deposit rates increased by 12bpsMoM to 5.88% during May-12
• Rates on lending down by 3bpsMoM to 12.95% during May-12
• Outlook - Spreads remains in the range of 7.0% to 7.5% during CY12
In today’s Value Seeker, we present an insight on latest figures issued by State Bank of Pakistan (SBP) for Banking Spreads during the month of May-12 along with our outlook on the sector.
Banking spread stood at 7.07% during May-12, down by 15bpsMoM
According to the latest figures released by SBP, banking spreads (difference between lending and deposit rates) of the overall banking sector during the month of May-12 fell by 15bpsMoM to stand at 7.07% compared to 7.22% during previous month. However on YoY basis, considerable decline of 58bps is witnessed compared to spread of 7.65% during May-11. The average interest rate spread during 5MCY12 (Jan-May) stood at 7.25% as compared to 7.57% in the same period last year, showing a decline of 32bpsYoY. Furthermore, the spreads based on gross disbursement and fresh deposit appreciated by 52bpsCYTD to 6.7% in May-12 from 6.2% in Dec-11.
Deposit rates increased by 12bpsMoM to 5.88% during May-12
The weighted average deposit rates on outstanding deposits including zero percent markup increased by 12bpsMoM to 5.88% during May-12 compared to deposit rate of 5.76% last month. On CY12TD basis, the rate on outstanding deposit remained flat at 5.88%. Highest deposit rate witnessed in Public sector funds which stood at 6.10% (declined 4bpsMoM) followed by deposit rate on private sector funds which stood at 5.84% (up 16bpsMoM).
Rates on lending down by 3bpsMoM to 12.95% during May-12
Yields on outstanding loans including 0% markup fell by 3bpsMoM to 12.95% during May-12 compared to 12.98% witnessed last month. While during CY12TD the rate on outstanding loans fell by 51bps compared to 13.46% of Dec-11 rate. Highest lending rates witnessed in Public sector loans which stood at 13.53% (declined slightly by 1bpMoM) followed by lending rate on public sector loans which stood at 12.98% (declined by 4bpsMoM). However, the 6M KIBOR, which is the benchmark for almost 80% lending to private sector hovered in very low range of 11.95% to 12.0% during the last five months or so, therefore the spread on fresh lending are on consistent downward trajectory largely after the downward adjustment in lending rates. On the other hand, stagnant deposit rate is the result of the slower inflow of funds into the banking system that made deposit mobilization task harder resulting into the fall in raising the rate of deposits.
Outlook - Spreads remains in the range of 7.0% to 7.5% during CY12
We expect that the full year average spreads of CY12 will remain in same range and likely to hover in the range of 7.0% to 7.2%. SBP has increased minimum deposit rate on all PKR saving account deposits from 5% to 6% to spur savings in the economy and benefit small account holders. However, we expect the impact would be lower to the savings accounts as the profit payable on savings deposits is calculated on the minimum monthly balance and the aforementioned instructions would not apply on foreign currency savings deposits.
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