Banking spreads stand at 4.7% in March


KARACHI: The spreads of the banking industry have continued to decline surprisingly showing a positive trend for the customers as it came down to 4.73% by the end of March 2014 after fresh deposit cost declined by 13bps to 5.8 percent while return on new advances also declined by 13bps MoM to 10.53 percent, statistics released by Sate Bank of Pakistan said.The spreads have been recorded declining by 19bps despite 50bps higher discount rate compared with the prevailing discount rate in the same month of last year. The tightening SBP requirement to pay return on PLS (Profit & Loss Sharing) Saving Account is the main cause of the lower reading.Though spreads are at low levels, Net Interest Margins of banks are likely to get support from higher yields on increasing PIB portfolio. It is because that the local banks and other investors have invested Rs 1.4 trillion though PIB auctions in 2014 to date.If 60-70% of total Rs 1.4 trillion PIB auction participation was from banks, after tax profits of banking sector would increase by Rs 13-15 billion. This alone will increase banking sector profits by 11-13%.By the end of first quarter of 2014, the banking spreads have reached an average at 6.02 percent in 1Q2014 versus  6.21 percent in the quarter of previous year and 6.15 percent in the last quarter of 2013.The quarterly average is lowest since first quarter of 005. However, some recovery was observed in fresh banking spreads which increased to 4.78 percent in 1Q2014 versus 4.49 percent in 4Q2013. On month on month basis, however, banking sector spreads remained stable at 6.05% in March 2014 after touching the 9-year low of 5.97 percent in Jan 2014.The decline in spreads was mainly attributed to recent hike in discount rate which was priced in the deposit cost earlier than return on advances. Though, overall spreads remained stable, cost of deposit and return on advances declined by 9bps month-on-month to 5.05 percent and 11.1 percent, respectively.In March, the investment of the banking sector increased by 1 percent to Rs 4.5 trillion from Rs 4.45 trillion recorded in February. It advances and deposits remained flat without showing any notable increasing standing at Rs 4.1 trillion and Rs 7.6 trillion respectively.The Investment to Deposit Ratio (IDR) of the banking sector settled at 59.5 percent after increase of 10 basis points whereas Advance Deposit Ratio (ADR) witnessed marginal rise to  7 basis points from previous month to stand at 54.2 percent in March.

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