LAHORE - The average banking spreads in fourth quarter of 2012 registered at 6.66 per cent, down by 31bps quarterly, and spread in 2012 stood at 7.02 per cent down 62bps annually.
According to experts, first time in eight years, Pakistani banks’ have witnessed their spread coming down to 6.54 per cent in Dec 2012, last seen in Jun’05. During CY12, the weighted spread shrank from 7.37 per cent (Jan 2012) to 6.54 per cent (Dec 2012), marking an 83 basis points reduction. This takes the average spreads for the full year to 7.04 per cent as compared to 7.63 per cent in CY11, down 59bps YoY. In Dec’12 alone, spreads decreased by 0.13 per cent on MoM and 1.04 per cent on YoY basis.
An analyst, Sana Tawfik, observed that in CY12, the banking spread has been adversely affected by two factors; Lower interest rates; and increment of PLS rate. For last few years, banks have been consistently enjoying spreads higher than 7.5 per cent mainly on account of higher lending rates (more than 15 per cent). However, the lending rates now have significantly dropped down on the back of 250bps reduction in policy rate bringing it at the level of 9.5 per cent. On the other hand, the central bank again jacked up the minimum deposit rate by 100bps to 6 per cent effective from Jun’12 resulting in higher cost of deposits for the banks. In CY12, private banks’ spreads (-0.7 per cent) were impacted the most followed by the public sector banks (-0.6 per cent YoY).
The outgoing year continued its lackluster tone for the banking sector as banking spreads for Dec12 reached to 6.54 per cent after a MoM decline of 13bps - levels last seen in May05. On YoY basis the average weighted spreads have decline by 104bps as in the same period last year they were recorded at 7.58 per cent. From an average weighted yield on outstanding loans of 13.63 per cent in 2011, the average yields have come down by 85bps to 12.78 per cent during 2012.
It is expected the IMF re-entry period would be in the beginning of FY14 when the country will be done with the elections and IMF will pin their hopes on a newly elected government for next five years to see the implementation of their reform agenda.
Furqan Punjani, a financial expert, believes the spreads would start to improve from mid CY13 on the back of increase in discount rates. Though the banking spreads have come down during 2012, he believes that investors would now focus on the full year results and payouts which would call for a rally in banking stocks in the near future.