LAHORE: The total volume of banking sector’s loans to private sector, mostly to food products and energy sector, has increased by Rs13b to Rs3.3 trillion in Feb 2015.
Meanwhile, the textile sector paid off Rs11 billon loans. The demand for credit from private sector remained slightly depressed during 2MCY15 due to lower credit demand from food and textile sectors.
Despite ongoing monetary easing, banking sector spreads have improved by 10bps to 5.89 per cent in Feb 2015 versus 5.79 per cent in Jan 2015. The expansion is primarily attributed to immediate re-pricing of savings deposits while it takes some time for return on advances to fully incorporate lower interest rates. However, on year on year basis, weighted average spreads declined by 16bps.
Experts see compressed spreads in the longer run on the back of lagged impact of recent 150bps cut in SBP policy rate (during Jan-Mar 2015) on return on advances portfolio which would bring down lending rates of the sector. They continue to like Pak Banks despite another 50bps cut in discount rate by the State Bank of Pakistan (SBP). They believe recent underperformance of the banking sector remains unjustified given a muted 1-7 per cent valuations impact driven by -2.2 per cent to +0.9 per cent earnings revision for 2015E and -5.3 per cent to +0.6 per cent for 2016F on the back of shift in sizable high-yielding assets to low-yielding assets during 2016.
