July 22, 2020 (MLN): The Banking sector spread for June 2020 slightly increased by 10 basis points (bps) over the month which brings its latest value to 5.75% as compared to prior month's spread of 5.65%. On the contrary, the spread has reduced by 3 bps as compared to the same period last year.
In line with the State Bank of Pakistan's monthly data released on Weighted Average Lending & Deposit Rates, the lending rate for all banks (inclusive of zero markup) compressed by 67 bps as it stood at 10.08%. Meanwhile, the deposit rate contracted by 78 bps over month, thus bringing the latest rate to 4.33%.
According to the report by Sherman Securities, generally, the impact of policy rate cut is directly reflected in deposits rates, while impact on lending rates is reflected with a lag and to note, policy rate has been reduced by 625bps during Mar-June 2020 by SBP, owing to both lower inflation and countering negative impact of Covid-19.
However, banking spread during this period increased by 57 bps, where deposits rates declined by 258 bps, while lending rates declined by 201 bps, it added.
Moreover, going forward, the impact of policy rate cut during 2HCY20 is expected to be fully reflected in banking sector spread , the report highlighted.
