Banking spreads remain firm at 7.52pc

Karachi: The banking spreads are firm at 7.52 percent in April, up by 13 basis points on year-on-year (Y-o-Y) basis.

However, the figures inched down month-on-month (M-o-M) by six basis points, owing to a hike in deposit rate up to 6.03 percent, while lending rates remained flat at 13.55 percent, according to a report released by JS Research on Thursday.

During the four months of 2010, spreads have averaged to 7.55 percent, up by 24bps Y-o-Y.

The report said that albeit a dismal first quarter, the banking sector deposits have gathered pace in the current quarter, along with investments, which continue to move upward.

After falling for the first time in nine quarters in January-March, industry-wide deposits gained momentum, increasing by 2.9 percent to $60.7 billion till May 13. Since the start of the calendar year, these are up by 1.4 percent, it said.

The jump comes following a hike in the net domestic assets, which was increased by Rs118 billion since March, following a rise in government borrowing from both the central, as well as scheduled banks.

Moreover, investments continued to be preferred earning asset, up by 1.7 percent in the second quarter and 6.6 percent year-to-date (YTD).

“Government borrowing from the scheduled banks, in order to address the fiscal needs, continues to be the prime reason behind this rise,” the report said.

The credit off-take of the industry remained under pressure since the start of the current quarter and declined by 1.9 percent (down 2.5 percent YTD) to $39.8 billion.

The recent dip in the off-take is likely to have come from retirement in the private sector credit, with Rs103 billion retired under the head since April.

“However, this has been partially offset by a pick up in commodity lending, which is likely to gather pace in the coming weeks, standing at around Rs44 billion since mid-April,” it added.

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