KARACHI, April 29: Average lending rate fell to 4.69 per cent in March 2004 from 5.68 per cent in December 2003 showing a huge decline of about one percentage point within three months. At 4.69 per cent the latest average lending also shows a huge month-on-month improvement because in February the average lending rate was 5.30 per cent.

But this all-time low lending rate is provisional in nature and may change once the State Bank finalizes the lending rates data collected from all banks. Weighted average lending rate of all the banks combined came down to 4.69 per cent in March as lending rates of local private and privatized banks as well as foreign showed a downward trend.

Provisional data released by the SBP shows that weighted average lending rate of privatized banks fell to 4.03 per cent in March this year from 5.67 per cent in December last.

During this period, weighted average lending rate of the local private banks also declined to 5.22 per cent from 6.31 per cent and that of foreign banks slipped to 3.57 per cent from 4.39 per cent.

Normally the provisional data on lending rates released by the SBP does not vary at all from the final data. But in November last year the two sets of data had shown a slight change because of late arrival of statistics from one bank.

So apparently one cannot rule out the possibility of a change in the latest number of overall weighted average lending rate i.e. 4.69 per cent. But SBP officials insist that chances for this are remote.

"We do not think the provisional data particularly the number of overall weighted average lending rate would vary when we finalize the data," said an official of SBP who refused to go on record. "It is just customary to indicate that the data is provisional whenever we release the latest statistics," he said.

Bankers say that lending rates declined in the January-March quarter because the banking system remained excessively liquid. This also reflected in higher disbursement of bank credit to the private sector.

In a little less than three-months to March 2004 net private sector credit offtake rose by Rs50 billion pushing up the July-December 2003 credit offtake of Rs187 billion to Rs237 billion.

If the number of weighted average lending rate of 4.69 per cent as of March 2004 is not revised upwards then it would go a long way to show that the banking system has improved its efficiency.

Based on weighted average lending rate of 4.69 per cent and weighted average deposit rate of 1.30 per cent in March 2004 the spread between the two comes to 339 basis points.

This is much lower than the spread of 426bps as of December 2003 when weighted average lending rate was 5.68 per cent and average deposit rate was 1.42 per cent. A narrower gap between the average lending and deposit rates indicates that the banking system has cut costs and become more efficient.

But bankers warn that the falling trend seen in the weighted average lending rates in March 2004 may not continue through the March-June quarter. "Lending rates have certainly bottomed out," said head of one of the five large local banks. "But I do not think the rates would show any substantial increase either.