KARACHI: The weighted average banking spreads witness a sequential increase of 46bps to 5.64 percent in May 2020, as deposit cost declines by 89bps on month-on-month basis while lending rates only trimmed by 43bps during the same period.

This is led by the immediate cut in deposit rates subsequent to interest rate cut announcements, while the same will reflect in lending rates with a lag of a couple of quarters.

Compared to the sharp decline in average 6M-KIBOR of 151bps in May 2020, the sector's lending rates have only dipped 43bps during the same period.

For the five months of current calendar year (CY20), weighted average spreads clocked in at 5.42 percent, down 20bps on year-on-year basis. On the other hand, fresh spreads expanded by 156bps on YoY.

"We reiterate impact of declining interest rates to result in abnormally higher NIMs in the second quarter, while to contract NIMs from third quarter," Amreen Soorani at JS Global Capital said.

Copyright Business Recorder, 2020