Banking sector spread plunges to 7.33pc in Nov

Wednesday, 30 December 2009 12:28

From International Desk - Special Reports

KARACHI - The spread of the banking sector fell by 30 basis points (bps) to 7.33 per cent during November 2009 from the level of 7.63 per cent recorded in the similar month of last year. However, average spread for the period Jan-Nov 2009 still showed high growth and reached at 7.49 per cent as against 7.25 per cent during the same period of last calendar year. The slowdown in the growth of spread is attributed to decline in the lending rates of the banking sector, which was caused by soft monetary policy stance of the central bank. The State Bank of Pakistan (SBP) released banking spread numbers for the month of November 2009. According to SBP statistics, after a consecutive rise during last two months, banking spread once again dropped by 8bps in the month of November 2009.  The pre-policy impact of monetary easing was clearly evident on the spread numbers. Sectoral analysis of spread showed that during November 2009, lending rates dropped slightly by 9bps on monthly basis to 13.58 per cent while cost of deposits remained almost flat at 6.25 per cent versus 6.26 per cent, a month earlier. This mainly ensued from falling KIBOR rates ahead of Monetary Policy (MP) announcement as 6-month KIBOR settled at 12.4 per cent on end-November 2009 (post MP) from a 12.8-12.85 per cent in the initial week of the month.  Analysis further revealed that as domestic economy is passing through a declining interest rate scenario after a tight monetary stance, lending rates have also come down to 13.58 per cent inline with KIBOR after posting a peak level of 14.66 per cent in January 2009.

Banking sector analyst Kamran Rehmani predicts the spread of the banking sector will be settled in the vicinity of 6.9 per cent to 7.0 per cent in the upcoming year on average basis which would be 50-60bps down from the spread of 2009. This is based on the assumption of continuation of 5 per cent floor on saving rates.   However, it is pertinent to mention that decline in spread would be somehow mitigated by volumetric increase as the demand for credit would increase with growth in nominal GDP and recovery in manufacturing sector, Rehmani said. The banking sector could witness a rally on 2009 annual results as some banks may record handsome reverse provisioning in the wake of relaxation in FSV benefit rules and loan restructuring/rescheduling , he added.  It is important to mention that weekly balance sheet position issued by the SBP indicates a major slowdown in additional provisioning expenses during 4Q2009 (Sept-Dec). As per the data, all scheduled banks have provided credit provisions of only PRs355mn during September 26, 2009 to December 19, 2009. This number was PRs26bn, PRs19bn and PRs15bn in 1Q, 2Q and 3Q of current year, respectively.

Courtesy : The Nation