Soft mon­e­tary pol­icy con­tin­ues to squeeze bank­ing spreads

The Pak Banker - - FRONT PAGE - Muham­mad Yasir

The cen­tral bank's stance of eas­ing mon­e­tary pol­icy con­tin­ued to tight spread of bank­ing in­dus­try which saw another con­trac­tion of 27 ba­sis points in July to set­tle at 5.47 per­cent from 5.74 per­cent in June 2015. State Bank of Pak­istan (SBP) sta­tis­tics said that the lend­ing rates de­clined by 21bps to 9.42 per­cent while de­posit rates rose by 6bps to 3.95 per­cent.

The soft mon­e­tary stance of the cen­tral bank kept the tar­get rate at 6.5 per­cent which also de­creased the de­posits rates of the bank­ing in­dus­try sub­se­quently.

The fresh spreads dur­ing July 2015 de­clined by mas­sive 74bps to 2.87% mainly due to 37bps dip in lend­ing rates and a con­trary 38bps surge in de­posit cost.

Cu­mu­la­tively, in seven months of 2015, the weighted av­er­age spreads have com­pressed by 37bps to 5.71% com­pared to 6.08% in same pe­riod of last year.

The lend­ing yields on fresh dis­burse­ment con­tinue its down­ward trend to 36bp­sMoM to 7.88%, be­low what has been of­fered on a5 years Pak­istan In­vest­ment Bonds (PIBs). The cost of fresh de­posits fol­lowed the op­po­site tra­jec­tory in­creased by 40bps to 5% re­duc­ing fresh spread to multi-year lows of 2.87%.

The to­tal in­dus­try de­posits have dropped to Rs 8.96 tril­lion in July 2015 as they faced post-June cor­rec­tion ob­served his­tor­i­cally due to the re­cently in­tro­duce WHT where busi­ness com­mu­nity pre­fer­ring in­for­mal chan­nels over for­mal chan­nels for trans­ac­tions. The bank­ing in­dus­try bor­row­ings dur­ing the same pe­riod have surged by 42% as Re­verse Repo lev­els re­main above Rs1 tril­lion.

More­over, banks adopt­ing pru­dence in lend­ing has kept in­dus­try's in­vest­ments growth strong which in­creased by 9% to Rs 6.107 tril­lion with IDR im­prov­ing by 7ppts from June 2015 to 71%. Ad­vances have gone down by 1% dur­ing the same pe­riod, keep­ing ADR sta­ble at 51% with over­all de­posits val­ues stand at 4.579 tril­lion.

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