KARACHI: The average banking spread for the first three months of 2009 stood at 7.69%, representing an increase of 62bps over the similar period of last year, according to official figures.

The spread for the month of March 2009 was recorded at 7.66%, indicating an improvement of 4bps on MoM basis. It was 57bps higher than that recorded in the corresponding month of last year.

Muhammad Imran, head of research at First Capital Equities, said a downward trend was likely to be witnessed in coming months. A detailed analysis of March 2009 spread working reveals that the lending rates dropped by 20bps to 14.38% on monthly basis, but this decline in lending rates did not fully reflect the recent downward trend in KIBOR, said the analyst.

He said he expected the lending rates to drop further as a result of re-pricing of floating-base loans to incorporate the declining pattern in KIBOR.

On the other hand, there was a reduction of 24bps in deposits rates in March 2009. This decline in deposit rate was the consequence of the re-pricing of shorter tenure term deposits at lower rates. “Banks would not be able to substantially reduce their cost of funds in months to come reason being the minimum 5% return regulation on saving accounts,” said Khan. staff report