Banks: Headline spread at a 9-yr low; but margins on the up!
Headline banking spreads clocked in at 5.95% for Jul-14; down 40bp MoM as deposit cost rose by 36bp MoM to 5.11%. The apparent increase in deposit cost is mainly a normalization effect, as temporarily higher CA during the last week of Jun-14 (due to
By Jun-14, conventional banks have parked over 30% of their total deposits into long tenure (3-10yr) PIBs. Thus, liquidity considerations have now taken the front seat in 2H14. SBP has already conducted OMO injections of over PRs700bn since June.
Healthy 2Q14 results driven partly by higher margins (as reflected by 19% QoQ NII growth by top 4 private banks) reinforces
Jul-14 banking spreads at 5.95%, down 40bp MoM as deposit costs normalize
Recent decline in banking spreads in Jul-14 to 5.95% is the lowest number on record since
Having said, average 2014TD spreads at 6.08% are just 18bp lower on a YoY basis, largely reflecting higher SA cost from linkage of Minimum Deposit Rate to Discount Rate in 2H13, although impressive changes in the deposit mix (consistently improving CA) curtailed much of the negative impact.
Lending rate persists flat despite impressive volume growth
Amid heavy PIB exposure, liquidity needs take the front seat
Although the headline spread shrinkage (courtesy high deposit cost) apparently paints a dismal picture,
Thus, liquidity considerations have now taken the front seat in 2H14. Lack of liquidity and GoP's insatiable appetite for long term domestic bank borrowing has further taken PIB yields North by ~40bp in Jul/Aug. SBP has already conducted OMO injections of over PRs700bn since June, whereas Repos by SBP during the same period stand at PRs300bn.
2Q14 results reinforce positive view; Reiterate Buy on MCB/UBL
Healthy 2Q14 results driven by (1) higher margins, (2) loan growth, (3) favourable deposit mix, and (4) non fund income momentum (as reflected by 19% QoQ NII and 12% QoQ fee income growth in 2Q14 by top 4 private banks) reinforces
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