Banking spreads trend higher
“Divergent movements in lending and deposits rates helped improve outstanding spreads by 5bps MoM and 24bps year-on-year during August 2010 to 7.56 per cent,” cited Abdul Shakur, the Assistant Vice President of BMA, referring to overall outstanding loans and deposits. “The six-month KIBOR rate has increased by 45 basis points in August, compared to the previous month, but banks’ average lending rates have declined by 12 basis points during the same period,” said Shakur. He explained that the “net retirement of investment worth Rs70 billion during August led to a sharp decline in yields on earning assets.”
Experts also assert that weak credit growth has kept credit demand under pressure, taking a bite out of returns earned by banks. Banking deposit rates also declined by a significant 50 basis points in August 2010 as against July 2010.
Interest rate hike expected
The six-month Karachi inter-bank offering rate (KIBOR) has increased by 8 basis points since September 15 to 12.97 per cent, according to banking sources. Experts assert that Treasury bill auctions also seem to indicate that there is an expectation that the discount rate will be increased by another 50 basis points by the State Bank of Pakistan in its monetary policy review on September 29th. “We believe that the weak economic scenario points towards further monetary tightening during fiscal year 2010-11,” commented Shakur. However representatives of industrial associations expect the policy rate will be held constant for now.
Published in The Express Tribune, September 28th, 2010.
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