LAHORE

The average banking spreads during May 2015 remained flat on monthly basis, clocking in at 5.59 per cent compared to 5.58 per cent during last month. However, on annually basis, spreads have contracted by 52bps due to monetary easing carried out by the regulator and steps taken to rationalize the spreads.
As per another data published by SBP, credit to private sector has declined by Rs2.1 billion in May 2015 to Rs3.3 trillion. Textile, food, real state, electrical and commerce sector eased their credit burden while agriculture sector, ship breaking and consumer loans came out as the net borrowers.
Despite monetary easing and SBP’s regulations to rationalize the banking spreads, weighted average spreads remained flat on MoM basis. Experts believe this is due to laggard impact of declining interest rates, where the rates on outstanding loans reprise with a lag of 3-6 months. Digging further, lending rates shrank by 10bps MoM to 9.85 per cent while deposit rates improved by 11bps to 4.26 per cent. However, on a YoY basis, spreads have contracted by 52bps due to monetary easing carried out by the regulator and steps taken to rationalize the spreads.
Cumulatively, during 5MCY15, spreads average at 5.75 per cent, down 29bps compared to SPLY. Digging further, lending rates averaged at 10.31 per cent while deposit rates stood at 4.56 per cent. We attribute the decline in spreads to the ongoing monetary easing by the central bank.
On the fresh spreads front, lending rates remained at 8.61 per cent on new loans, down 25bps MoM. However, rates on fresh deposits declined by 32bps, clocking in at 4.83 per cent resulting in fresh spreads to improve by 7bps MoM to 3.77 per cent.
Following the seasonality of credit offtake (advances peaking in Dec-Jan each year, which then start to reverse after March-April, hitting their low in Aug-Sep), credit to private sector declined by Rs2.1 billion in May 2015 to Rs3.3trn compared to average retirement of Rs6 billion in May in last five years. Textile and food sector shed their loan portfolios with net retirement of PKs10 billion and Rs18 billion, respectively, while real state, electrical and commerce sector have paid back their loan by cumulative Rs9 billion. On the other side, agriculture sector remained the major borrower with net addition of Rs17 billion in May’15 while total loans of ship breaking and consumer also surged by Rs8 billion and Rs9 billion, respectively.
That said, demand for credit from private sector remained dull during 5MCY15, where the cumulative retirements clocked in at Rs21 billion. However, if compared to last five years, demand has remained decent as the average retirement by private sector stood at Rs56 billion in similar period of past five years.