KARACHI, March 8: Savers are scurrying around to see where they can get a suitable return on their savings as the return on bank deposits continue to fall.

The economic managers including PM’s adviser on finance Shaukat Aziz can take pride in the fact that the average lending rate of the banks has fallen below 10 per cent. But what seems disturbing is that banks have made this achievement at the cost of the savers.

According to the SBP statistics (available on its website) the weighted average deposit rate of all banks fell from 4.02 per cent in July 2002 to 3.21 per cent in January 2003. This was slightly below consumer inflation or inflation measured by consumer price index that saw an year-on-year increase of 3.53 per cent during this period.

The figures are apparently shocking. “But in fact real deposit rate has not actually fallen below inflation,” insists a central banker. “The current account deposits are not excluded from the total deposit base while calculating the weighted average deposit rate. So the rate looks lower,” he explains. He cannot say what exactly the average deposit rate would be — if calculated against the deposit base minus current account deposits.

But regardless of it what looks more important is the fact that weighted average deposit rates have been on the fall in line with the fall in the lending rates. That proves the point that the banks have brought down the average lending rate below 10 per cent (9.95 per cent to be exact as of January 2003) partly at the cost of the savers. In July last the average lending rate of all banks combined was 12.17 per cent and the deposit rate was 4.02 per cent. In January 2003 the lending rate fell to 9.95 per cent and deposit rate to 3.21 per cent. So whereas the quantitative fall in the lending rate in seven months was 2.22 per cent the actual decline in the spread between lending and deposit rate was much lesser — 1.41 per cent.

“The change in the spread is a much better indicator of the performance of the banks rather than an absolute change in the lending rates,” says noted economist Dr. Javed Akbar Ansari. He says over the years the banks have managed to bring down their lending rates but the spread is still high. In fact the spread rose slightly in fiscal year 2001-02 as compared to 1999-2000. “This is a clear indication that the banking sector reforms that caused wide-scale unemployment in banks have not yielded the desired result.”

This statement is well substantiated by facts: According to SBP statistics the weighted average lending rate of all banks combined stood at 14.02 per cent in fiscal 1999-2000 whereas the weighted average deposit rate was 5.89 per cent. Two years after in fiscal 2001-2002 the average deposit rate fell to 13.12 per cent and the average deposit rate declined to 4.73 per cent. So whereas the lending rate saw an absolute fall of 0.9 per cent the spread between lending and deposit rate moved up instead — by 26 basis points to 8.39 per cent in 2001-2002 from 8.13 per cent two years ago.

“It is time to seriously analyze why the spread between the lending and deposit rate rose during the years when banking sector reforms were taking place,” says a former chairman of Karachi Stock Exchange Yasin Lakhani. “One possible explanation is the banks have failed to make the desired reduction in their non-performing loan portfolios. But at the same time there is a need to analyze how — and if — the banking experts inducted into the industry in recent years have contributed to the efficiency of the banking system.” Lakhani shares the popular belief that huge salaries and perks being paid to such bankers have wiped out a major chunk of the savings made through job-cuts and closure of bank branches. He insists that this should also be looked into thoroughly.

STOCKS: Stock brokers say the frequent cuts in banks lending rates and in the returns on national saving schemes have worried a large number of small and medium investors. But does the stock market offer any opportunity to them? “The answer is yes,” says Lakhani.