Banking spreads continue to move in favourable direction

KARACHI: The banking sector’s fresh spreads continued to move in a favourable direction for the sector, clocking in at 4.99 percent during May-2021 up 24bps on month-on-month and up 44bps on year-on-year basis.

Fresh spreads have remained higher than weighted average spreads for the eighth consecutive month, experts said.

The improvement in fresh spreads came from both sides with lending rates increasing and deposits rates moving down.

As a result, weighted average banking spreads for May 2021 clocked in at 4.45 percent, down 2bps on MoM and down 119bps on YoY).

The sector’s outstanding lending rates remained close to 7.9 percent while cost of deposits witnessed a decline, coming down to an almost 3-year low.

“We believe the continued decline in deposit rates can be reasoned with an improving share of current accounts in the total pie”, Amreen Soorani at JS Global Capital said. “We expect double-digit growth in zero-cost deposits to continue during the second quarter of CY21 as well.”

Moreover, 6M KIBOR showed a slight upward adjustment in May-2021, averaging at 7.72 percent up 8bps on MoM and down 26bps on YoY). Resultantly, spreads on lending rates broadly remained unchanged.

Banking spreads for the first five months of CY21 averaged 4.39 percent, down 102bps on YoY.

Copyright Business Recorder, 2021