Karachi, June 23, 2021 (PPI-OT): Banks: Fresh spreads marginally inch upwards

The banking sector’s fresh spreads continued to move in a favourable direction for the sector, clocking in at 4.99% during May-2021 (+24bps/+44bps MoM/YoY). Fresh spreads have remained higher than weighted average spreads for the eighth consecutive month.

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% (-2bps/-119bps MoM/YoY). The sector’s outstanding lending rates remained close to 7.9% 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. We expect double-digit growth in zero-cost deposits to continue during 2QCY21 as well.

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

Banking spreads for 5MCY21 averaged 4.39% (-102bps YoY), while fresh spreads during the same period clocked in at 4.71%, reflecting a decline of 89bps YoY.