KARACHI, Oct 6: The banking spread further increased in August while the eight-month average spread was 25 per cent higher than the average of the corresponding period last year.
The SBP data showed that the banking spread in August was 7.5 per cent. The eight-month average banking spread was 7.3 per cent compared to 5.8 per cent during the corresponding period last year, which is 25 per cent higher (or 150 basis point increase).
All hue and cry over poor return to depositors failed to bring any change and the banks kept making record profits in the last two and half years, ignoring the real money holders –- the depositors.
Though the new banking products have started offering better returns on fresh deposits, their share in the overall deposits is not more than two per cent.
The weighted average lending rate for all banks was 10.64 per cent, while the deposit rate was 3.14 per cent. In the wake of high inflation of about 8.9 per cent and double-digit food inflation, the return on deposits is significantly negative.
The lending rate has gone up during the fiscal year as the State Bank raised the interest rate, and the corporate sector was also borrowing not less than 12 per cent.
However, the banks were mainly profiteering over consumer financing that pays over 18 per cent to banks. The March 2006 data showed that the share of consumer lending has increased to 13.1 per cent of the total lending.
The share is rising as banks have focused on the consumer financing which is also favorable for the government that has been making effort to keep the market heat up with buying and selling. The consumer-based economic policy suits the government and easy to deliver despite being short-lived in nature.
The share of costlier money is rising in the banking sector, as banks were charging higher rates on consumer financing, SMEs and agriculture financing. The share of the corporate sector has gone down.
“The corporate sector borrows 54 per cent of the total borrowing and gets a better rate ranging from KIBOR plus 1 to 2 per cent,” said Mumhammad Imran, analyst at JS and Company.
The Karachi Inter Bank Offered Rate (KIBOR) was 10.5 per cent, which means that the corporate sector was borrowing about 11.5 to 12.5 per cent.
The SME sector, which constitutes 17.3 per cent of the total borrowing, also receives loans not less than 15 to 16 per cent. The agriculture sector borrows at 13 to 14 per cent.
“It shows that the banks were getting better returns because of higher lending rates of these three sectors, which would keep the banking spread high despite better return on fresh deposits,” Mr Imran said.Analysts said that the banks were offering better return on fresh deposits but wanted to engage money for a longer period. The depositors prefer to remain liquid instead of engaging money for a longer period. It also causes lower return to depositors.
“The current decision of the government allowing all institutions to invest in the National Saving Schemes (NSS) has put pressure on banks to increase rate of returns to mobilise deposits,” said another analysts.
He was of the view that the decision put the corporate sector in a better position to seek higher return on their deposits otherwise deposits would be shifted to the risk-free NSS.
“We expect the banks would come out with better products to attract depositors. They can offer much better return as they need money to invest in consumer financing to get a return ranging from 18 to 21 per cent,” said the analyst.
