Banking sector spreads stable at 5.14pc in Feb ‘16
The banking sector spreads remained steady at 5.14% in February as compared with 5.12% recorded in January 2016, as per the latest numbers released by the State Bank of Pakistan (SBP), hence directing yields towards downward trajectory since August 2015.
The lending yield on fresh disbursement improved by 13bps MoM to 7.28% and the recent attrition in PIB yield as the market developed an expectation of a rate cut have resulted in the spread between the average yield of 5-yr Pakistan Investment Bond (PIB) and lending rate to contract to 7bps as against 85bps in January 2016. The cost of fresh deposits (COD) followed the same path thereby increasing by 15bps and hence, fresh spreads remained at 3.04%.
The banks charged slightly higher credit spread (Fresh Lending Yield - KIBOR) of 81bps compared to 75bps as private sector credit offtakes picked-up by Rs 34 billion.It is still significantly lower than 140bps charged in June 2015 reflecting the sector's focus on lending to borrowers with strong repayment capacity. In future the banking industry may witness a marginal reduction in lending yield as the banks may reduce their credit spreads to participate in CPEC related financing.
Pakistan banking industry deposits contracted by Rs 22.5 billion in February to stand at Rs 9.38 trillion as against of Rs9.408 trillion of January due to demand of the money in the open market.
According to the State Bank of Pakistan (SBP), the deposits of all banks declined to Rs 9.38 trillion from Rs 9.408 trillion in January 2016 and Rs 8.49 trillion registered in February 2015.