LAHORE -  As per the State Bank of Pakistan, the banking spreads during 2017 picked up by 34bps to 3.62 percent annually, as both 5bps higher lending and 29bps lower deposit rates favored the positive trend.

The average banking spread on fresh lending rates clocked in at 83bps during 2017 versus 74bps during 2016. To recall, banking sector's advances also witnessed impressive growth of 17 percent YoY during 2017, a 9- year high. The banks' focus on replacing savings deposits with zero-cost deposits is likely to keep cost of deposits under pressure ahead.

SBP Average spreads continue to drag on the other hand weighted average banking spreads clocked-in 17bps during 2017 versus 5.11 percent in 2016, as lending rates dropped by 45bps to 7.87 percent. In Dec-2017, spreads declined by 17bps YoY to 4.85 percent, as lending rates and deposit rates moved down by 30bps YoY (to 7.74 percent ) and 13bp YoY (to 2.89 percent ), respectively. It is expected that banking sector's NIMs to decline by 48bps YoY (-4bps QoQ) in 4Q2017 as spreads during the quarter declined by 12bps YoY to 4.89 percent (-6bps QoQ).

Experts highlight NIMs also include income from investments, where banks have moved towards short-term papers during 2017, offering lower yields than long-term bonds.