KARACHI - Banking sector spread increased by 31 basis points to 7.41 per cent during October 2009 compared with 7.72 in the same month of last calendar year due to a sharp rise in KIBOR rates. However, on month-on-month basis, the growth in banks spread contracted by 3bps to 7.41 per cent over the preceding months level of 7.38 per cent. This is the second consecutive month of increasing spread numbers as in September 2009, the spread was recorded at 7.38 per cent - 6bps higher on MoM basis. Analysts foresee that the banking sector spread will squeeze in 2010, and resultantly, the banks margins would come under pressure. The SBP recently announced the banking sectors spread data for the month of October 2009. As per the data, the average spread for first 10 months of 2009 is recorded at the level of 7.51 per cent, which is almost 30bps higher from the average spread of the corresponding period of 2008. On monthly basis, the lending rates remained intact at the level of 13.67 per cent while cost of funds dropped by 3bps at 6.26 per cent. Interestingly, after February 2009, it is first time when lending rates remain stagnant. During July 2009, one month average KIBOR dropped to 12 per cent from 13.36 per cent. In addition to this, the SBP kept the discount rate unchanged in Monetary Policy of Oct-Nov 2009. Therefore, average KIBOR for October 2009, went up to 12.73 per cent. This pushed-up the fresh loan re-pricing rates. Analysts further believe that the lending rates would come down in upcoming months as the SBP has recently relaxed its monetary stance. The change in monetary policy initially impacts lending rates while after some lag its impact on deposits rates become visible.