Banking spreads ? pace of loan re?pricing remains sluggish
Banking spreads data released yesterday shows a decline of 4bps MoM in Jan?14 spreads to 5.97%. However, more importantly, private banks posted a 5bps MoM increase in spreads in Jan?14 to 5.90%.
Loan re?pricing post 100bps cumulative hike in DR in Sep and
The cost of deposits, however, largely reflects the increase in MDR and is up by 40bps compared to Sep?13, when the tightening cycle started.
The spread on fresh loans and deposits improved by a massive 88bps in Jan?14, reflecting a 40bps MoM decline in deposit costs (largely accounted for by normalization post last month's year end impact), and a 48bps increase in spreads on fresh loans.
Headline spreads near 9 year low, private sector spreads marginally improve
SBP reported banking spreads data yesterday, with overall spreads declining by 4bps to 5.97% in Jan?14. Higher cost of deposits (up 14bp MoM to 5.19%) post linkage of MDR to repo rates together with marginal increase in lending rates (up 10bps MoM to 11.17%) have now pushed spreads below 6.0% for the first time since Apr?05. However, private banks spreads have improved by 5bps to 5.90% in Jan?14, primarily driven by 12bps MoM increase in lending rates.
Pace of loan re?pricing remains sluggish
Despite the cumulative 100bps hike in DR since Sep?13, banking spreads have headed stubbornly downwards. The main reason for this has been the sluggish pace of loan re?pricing. Loan re?pricing post 100 bps cumulative hike in DR in Sep and Nov?2013 did start to take effect in Jan?14, where overall lending rates rose by 10bps MoM in Jan?14, whilst private banks lending rates rose by 12bps MoM. Since Sep?13, lending rates have risen by a mere 6bps with lending rates of 11.17% in Jan?14 compared to 11.10% in Sep?13.
Although MDR hike has been accommodated
On the deposit side, higher MDR on savings accounts is now completely reflected in the higher cost of deposits, which has jumped by 40bps to 5.19% in Jan?14 compared to 4.79% in Sep?13. Resultantly, three months after the initiation of DR hike cycle, the banking sector has experienced 34bp shrinkage in spreads.
Spreads on fresh disbursement rise by 88bps, further improvement ahead
In terms of the spread between fresh disbursements and deposits that took place in the month of Jan?14, there was an 88bp MoM increase in spreads. This large move was accounted for by a 40bp MoM decline in cost of fresh deposits in Jan?14, largely reflecting the reversal of Dec year end effect.
Lending yield on fresh loans increased by 48bp in Jan?14, as the impact of higher DR was visible. However, low credit disbursement in Jan?14 reduces the relevance of this number.
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