LAHORE -  The banking sector spreads arrived at 4.90 percent for November 2017 on outstanding loans, unchanged MoM (two months in a row). While spread on fresh disbursements declined to 3.62 percent for Nov 2017 compared to 3.68 percent for Oct 2017 (-6bps). The downtick in spreads on fresh disbursements is attributable to a higher fund cost as cost of fresh deposits was up 12bps MoM against a 6bps MoM improvement in yield on fresh lending. Competition for low cost funds is the biggest contributor to surge in fund cost.

Credit spread jumped 5bps MoM for Nov 2017, while the lending spread registered further growth to arrive at 92bps (+6bps MoM), on account of rising yield on fresh disbursements as loans to private sector clocked-in at Rs 4.6tn (+20 percent YoY) as at Nov 2017, according to latest data by the SBP. High-yield segments like SME, Commercial and Consumer Finance recorded the most growth in loans to the private sector.

It is anticipated average spreads for the year, on both fresh and outstanding loans to hover around 3.63 percent and 4.95 percent, respectively. Where any uptick in fund cost during the last month of CY17 is likely to be offset by surging yields on lending, as it is anticipated high-yield loan segments to continue the growth trajectory in the final month of CY17 as well. Consequently, lending spread is also expected to pick-up further.