KARACHI, Jan 5: The banking spread showed a slight contraction in November 2008 reflecting the unhealthy competition among the banks for deposit mobilisation for which they are offering very high returns.The difference between lending and deposit rates stood at 7.6 per cent in November 2008 against 7.7 per cent in October 2008.

The cost of funds is rising as banks were offering high return on deposits ranging from 15-20 per cent.

“After June 2008, it is the first time when the monthly increase in the cost of funds remained higher than the increase in the lending rates,” said Mohammad Imran, head of research at First Capital Equity.

On monthly basis, the cost of funds increased by 33 basis points at 6.5 per cent while lending rate was up by only 24 basis points at 14.1 per cent.

Analysts have warned that the unnatural competition with such exorbitant return on deposits could to disaster for the banking industry.