Banking sector spread continues its upward trajectory for the third consecutive month

January 25, 2019 (MLN):  The banking sector spread for the month of December 2018 has jumped to 5.20% (+5bps MoM, +35bps YoY), depicting an escalation for the third consecutive month according to an official data released recently by state Bank of Pakistan (SBP).

The latest numbers show that the cumulative policy rate hike of 425bps during the year has led to the banking sector spreads improving by 35bps only, leaving an ample room for improvement in CY19.

During the period Jul-Dec FY19, weighted average deposit rates witnessed an increase at a slower pace than weighted average lending rates, instigating the bank’s spread to move upward.  .

The lending rate on outstanding loans in December 2018 was up by 192bps YoY and clocked in at 9.66%. Meanwhile the deposit rate was up by 157 bps YoY and clocked in at 4.46%.

However, the spread on fresh disbursements during the month under review declined to 3% (-150 bps MoM). The downtick in spreads on fresh disbursements is attributable to a higher fund cost as cost of fresh deposits was up 209bps MoM.

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