Karachi, November 24, 2021 (PPI-OT): Banks: Spreads yet to reflect recent Policy Rate adjustment

Average banking spreads for Oct-2021 were 4.18%, -48bps YoY; taking 10MCY21 average spreads to 4.32% (-87bps YoY).

During Oct-2021, lending rates clocked in at 7.89% (-51bps YoY), while deposit rates remained nearly flat at 3.71%.

After a streak of 12 months, fresh spreads have once again averaged lower to the weighted average banking spreads for the month. Fresh banking spreads decreased in Oct-2021, standing at 3.95%, -109bps YoY, as improvement in lending rates by 22bps YoY were not enough compared to the 131bps YoY rise in fresh deposit rates. For 10MCY21, fresh spreads also witnessed a similar trend, declining by 49bps YoY.

The recent cumulative hike of 175bps in Policy Rate is yet to be reflected in fresh lending rates. With the KIBOR moving +200bps already, we believe adjustment of the hike in Policy rate is soon to be reflected in the sector’s topline, hence we can expect sharp increase in spreads in the months to follow.