By: Nauman Khan and Sonia Agarwal
92 21 5612290-94 Ext 335
Foundation Securities Pvt Ltd
Latest State Bank of Pakistan (SBP) data shows weighted average (WA) spreads increased by 13bps MoM to 5.88% in Sep’14 on the back of uptick in lending rates. On the other hand, fresh spreads are down by 60bps to 4.37% mainly owing to 57bps MoM jump in fresh deposits rates.
The reduced spreads hint at tighter earnings ahead. However, these numbers are not reflective of portfolio shift towards high yielding PIBs. Banking sector has parked PKR1.8trn YTD (PKR34bn in 3Q) in PIBs. On the back of this portfolio shift and prudent lending (to curtail NPLs), we continue to have our liking towards the sector with UBL as our preferred play.
WA spreads clocked in at 5.88%: As per the data, WA spreads stood at 5.88% in Sep’14, up 13bps MoM. Lending rates posted a slight uptick of 8bps MoM to 11%. However, deposit rates went down by 5bps MoM to 5.12%. On YoY basis, WA spreads went down by 43bps owing to 50bps increase in key policy rate and link of minimum deposit rate (MDR) to 50bps below the repo rate. This pushed the WA deposit rates to 5.12% (+33bps YoY).
Moreover, pressure on fresh deposits was again seen as fresh spreads posted a decline of 60bps MoM to 4.37%. Fresh lending rates contracted by 3bps MoM to 10.30%. Contrarily, fresh deposit rate were up by 57bps to 5.93% in Sep’14.