KARACHI, June 26: The banking spread or the gap between lending and deposit rates of banks fell by 126 basis points during the third quarter of this fiscal year and by 250bps in July-March 2002-03.

According to the SBP third quarterly report a factor that should have helped in lowering banking spread is considerable improvement in non-performing loans of the banking sector. The outstanding NPLs declined to Rs242.2 billion by end of March 2003 with a contraction of Rs2 billion during January-March alone.

The weighted average lending rate of all banks combined fell to 8.26 per cent at end-March 2003 and weighted average deposit rate declined to 2.81 per cent.

The SBP report says that the aggregate deposits of banks continued to grow strongly for the third successive quarter of FY03, registering a 4.1 per cent increase even though the real rate on deposits turned negative.

As a consequence the weighted average lending rates on fresh loans and advances of the banks slipped into single digits.