Karachi – Banking spreads witnessed a highest MoM jump of 25bps in June 2014 to 6.36%; utmost in FY14. Although asset yield dropped by meager 5bps MoM to 11.10% but a mammoth drop in deposit cost of 30bps to 4.75% took the overall spreads into the satisfactory zone.
Analysts at InvestCap attributed this fall in deposit cost to a favorable deposit mix by banking industry. They pointed that during most part of FY14 asset yield remained stagnant on account of heavy investment in government’s securities.
On category basis, spreads of public, private, foreign and specialized banks improved by 29/24/25/29bps MoM respectively.
Similarly, spreads on gross disbursement and fresh deposits also improved by 55bps to 5.43% as compared to 4.89% in May’14. Spreads of specialized banks drew down by 214bps whereas spreads of public, private and foreign banks jumped by 173/62/20bps MoM respectively.
Analysts viewed although banking spreads remain stagnant YoY in Jun’14 at 6.36% but the average spreads in FY14 fell down by 37bps to 6.16% as compared to average spreads of 6.53% in FY13. The average asset yield during FY14 was 11.13% whereas the same was 11.99% in FY13; a drop of 86bpsYoY.
Similarly, the average deposit rate has decreased by 49bps to 4.97% v/s 5.46% in FY13. More than offsetting dip in asset yield as compared to deposit cost was mainly on account of banking sector preference to invest in risk free government’s securities.
They expect credit to private sector picked up in FY14 to Rs379b which was Rs-19b by FY13 end. However, this segment is still very small as compared to total asset size of the banking sector. Going forward, any improvement in energy and law and order situation will further boost the credit to private sector and hence the asset yield of the banking sector is likely to improve. Keeping in view the current preference of investments by banking sector, they expect the spreads to remain passive. They say status quo on DR at 10% in upcoming monetary policy is likely to further contribute in spreads to remain low.

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