JS Securities Limited - JS Research (24-09-2021)

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JS Securities Limited – JS Research (24-09-2021)

September 24, 2021

Karachi, September 24, 2021 (PPI-OT): Banking spreads remain stable in Aug-2021

During Aug-2021, fresh spreads depicted a declining trend, clocking in at 4.52% (-38bps MoM) as lending rates (-54bps MoM) shed more than deposits rates (-16bps MoM).

As a result, weighted average banking spreads in Aug-2021 clocked in at 4.26%, close to previous month levels (+2bps MoM), as lending rates slightly increased by 2bps MoM vs. no change in average deposit rates.

During the month, 6M KIBOR also remained stable as compared to the previous month, resulting in decline in spreads on fresh lending rates.

Average fresh spreads in 8MCY21 were 47bps YoY lower at 4.72%, where weighted average banking spreads clocked in at 4.37%, down 97% YoY.

With 25bps increase in the Policy Rate during Sep-2021, and anticipation of monetary tightening to continue for the next 8-10 months, upward adjustment in 6M KIBOR has already begun with ~45bps increase since end of Aug-2021.

We expect banking spreads to trim further in the coming quarters over immediate increase in cost of funds with upwards adjustment of savings rates on deposits, while re-pricing of loans may take a quarter or two.