KARACHI, Dec 28: Individual slashing of lending rates by many banks in November has brought down the weighted average lending rate of all the banks combined from 11.48 per cent at end-October to 10.66 per cent at end-November. Banks had started lowering their lending rates last month after a 1.5 per cent cut in the SBP discount rate followed by a matching cut in the six-month T-bills rate.
More importantly the weighted average deposit rate of the banks has seen only a marginal fall of 10 basis points coming down from 3.97 per cent at end-October to 3.87 per cent at end- November. This does indicate that the banks would makeup for the cut in their lending rates through more efficient banking but they will also have to take a hit on their profits. “That exactly is the case,” says head of a local bank who believes that the SBP should have cut its discount rate and T-bills rate much earlier.
According to the latest SBP statistics posted on its website the nationalized commercial banks made the lowest cut in their lending rate in November bringing it down to 12.18 per cent from 12.28 per cent at end-October. And at the same time they also cut the weighted average deposit rate to 3.46 per cent by the end of November from 3.50 per cent a month earlier.
Officials in NCBs say what stopped them from making a big cut in the lending rates in November was that they had invested much of their surplus liquidity in treasury bills. That had left little room for them to reduce their lending rates on a big scale. But they claim — and their clients do admit it — that they are making much cheaper loans to prime borrowers on case-to-case basis.
Privatized banks i.e. Muslim Commercial Bank and Allied Bank put together reduced their weighted average lending rate from 12.76 per cent to 11.51 per cent. More importantly they did not make any reduction in their weighted average deposit rate: In fact their deposit rate rose marginally from 3.05 per cent at end- October to 3.10 per cent at end-November.
Local private banks also managed to cut their weighted average lending rate from 11.75 per cent at end-October to 11.11 per cent at end-November — a reduction of 64 basis points. But at the same time they lowered the weighted average deposit rate by 28 basis points — from 5.43 per cent to 5.15 per cent.
The foreign banks made the largest cut in their lending rates last month. The weighted average lending rates of these banks fell from 9.34 per cent at end-October to 7.93 per cent at end-November.
A huge slashing of 1.41 per cent. Compared to this the fall in their weighted average deposit rate was minimal: the rate slipped from 3.86 per cent at end-October to 3.58 per cent at end-November.
“The reason why the weighted average lending rate of foreign banks recorded a big fall is that they have the upper class corporate clients who are able to negotiate markup rates from any bank,” said head of a foreign bank in Pakistan. “We had to pass on the benefit of falling interest rates immediately to the customers because they are the prime borrowers.
They can get loans from anywhere at a price that suits them.” Since the prime borrowers have a lesser share in the pie of advances of local banks their weighted average lending rate did not fall as sharply as that of foreign banks even though they offered much cheaper finances to these borrowers. This applies more pertinently on the state-run and privatized banks whose clients also include state-owned enterprises that cannot get very cheap loans from the banks because of their poor financial standing.
Adviser to Prime Minister on Finance Shaukat Aziz is keen to see the banks bring down their lending rates to a single digit. But bankers say that is not possible without making some cuts in the already low deposit rates. Analysts believe that a further fall in the average bank deposit rate of 3.87 per cent will lead to dis-saving.
Already a part of banks money has gone to the bullish stock market. It may or may not stay there for long but one thing is sure: it is not going to be retransformed into bank deposits if the average deposit rate remains so low — just close to consumer inflation thus serving no big incentive to saving.