KARACHI, Jan 10: The weighted average lending rate of all the banks combined inched up 17 basis points in November but the weighted average deposit rate crept up only two basis points. It means that the banks made more expensive loans but did not share the additional income so earned with the depositors.

The latest data released by the State Bank shows that the average lending rate rose to 5.49 per cent at end-November from 5.32 per cent at end-October 2003. But the average deposit rate crawled up to just 1.47 per cent in November from 1.45 per cent in October.

This 1.47 per cent average rate of return on bank deposits was far below the annualized consumer inflation of 2.62 per cent in July-November 2003.

Average lending rate had started inching up in September after having bottomed out at 5.02 per cent in August 2003. But the average deposit rate that was at 1.6 per cent in August declined further to 1.5 per cent in September and to 1.45 per cent in October before moving up to 1.47 per cent in November.

"This indicates that from September through November the banks made large consumer loans that are much costlier than industrial loans," explained head of credit of a big local bank.

"Otherwise there appears to be no reason for weighted average lending rate to go up because industrial loans were still being made at low rates."

This statement seems weighty because personal loans made up 34.4 per cent of overall advances all the banks made in July- September last year. Senior bankers anticipate that figures for the December quarter would also be in line with it.

With a sharper increase in the weighted average lending rate than the increase in deposit rate has once again expanded the banking spread. At end-August 2003 the spread stood at 342 basis points substantially down from 674 basis points at the start of the year. But at end-November it rose to 402 bps. "The SBP must take note of it because it undermines the success it achieved earlier in containing the spread," says Sardar Muhammad Ashraf Khan, an industrialist. Mr. Khan represents the private sector on National Credit Consultative Committee that frames annual credit plan for SBP to execute.

The SBP data shows that the weighted average lending rate of privatized commercial banks shot up from 4.15 per cent at end- October to 5.72 per cent at end-November showing a big rise of 157bps. This rate is arrived at by clubbing together the average lending rate of (i) Muslim Commercial Bank (ii) United Bank Ltd and (iii) Allied Bank Ltd.

The 157bps increase in the weighted average lending rate of the privatized bank is the highest among all groups of banks.

The average lending rate of foreign banks operating in the country rose 21bps-from 3.70 per cent at end-October to 3.91 per cent at end-November 2003: the average lending rate of specialized banks also inched up from 13.39 per cent to 13.47 per cent during this period.

But the average lending rate of local private banks and that of state-run banks fell instead-as they made serious attempts to perform better. The average lending rate of local private banks fell from 6.61 per cent to 6.05 per cent and that of the state-run banks declined from 5.77 per cent at end-October to 5.66 per cent at end-November 2003.

Not only did the average lending rate of privatized commercial banks moved up faster than other groups of banks their average deposit rate also fell. The average deposit rate of privatized banks slipped from 1.07 per cent at end-October to 0.96 per cent at end-November. At this level the deposit rate of privatized banks was the lowest among all groups of banks. "This raises a basic question. Do the regulators monitor the performance of the privatized businesses to see if privatization has made them more efficient?" asks Muhammad Ali Memon, a known trade unionist.

"Had the government heeded to our proposal of privatizing banks through stock exchanges to broad base its benefits and discourage monopoly this situation would not have emerged."

The remarks of Mr Memon, who is secretary general of the federation of HBL employees, are very relevant because HBL was also sold to a single party late last month in an unprecedented hurry.

Central banks worldwide use the banking spread as a yardstick to gauge the performance of the banks - low banking spread shows better performance. With their average lending and deposit rates at 5.72 per cent and 0.96 per cent respectively the banking spread of the privatized banks stood at 476bps at end-November 2003.

Against this the spread was 428bps in case of state-run banks and 419bps in case of local private banks - 14 in number. The state-run banks include (i) National Bank (ii) Habib Bank (its status changed to that of a privatized bank this year) and (iii) First Women Bank. The banking spread of specialized banks was 901bps - the highest among all bank groups. These banks include (i) Zarai Taraqiati Bank Ltd. (ii) Industrial Development Bank of Pakistan; and (iii) The Punjab Provincial Cooperative Bank.

In case of the foreign banks, the spread was the lowest at 278bps with their average lending and deposit rate at 13.47 percent and 4.46 per cent respectively at end-November 2003.