LAHORE – In December last year, banking spreads advanced to 6 per cent as compared to 5.8 per cent in the previous month. During CY 2014, spreads remained depressed, clocking in at 5.98 per cent, down 26bps.
The decline was because of lower lending rates and flat deposit costs. Lending rates on outstanding loans remained stable at 10.9%, whereas rate on deposits declined to 4.9% versus to 5.1% in the previous month, statistics of central bank reveal.
As per experts, lenders are now less affected with a discount rate cut as Minimum Deposit Rate (MDR) on saving rates are also linked with the policy rate. So, along with the reprising of loan book, deposit rates are also revised following a rate cut. They have largely been focusing on mobilizing low cost deposits and experts attribute the slight decline in cost of deposits to the low cost deposit mobilization by banks.
Average banking sector spreads for the full year 2014 (Jan-Dec) declined to 6.0% as against 6.2% in 2013. Lending rates dropped by 26bps to 11.0% from 11.3% whereas cost on deposits remained stable at 5.0% in 2014. On the other hand, fresh banking spreads in Dec 2014 clocked in at 4.3% as against 4.8% in the previous month.
