As per the data released by the State Bank of Pakistan (SBP), Pakistan’s Banking sector spreads for April’20211 stood at 4.46%, recording a 15bps rise over March’2021, taking CY2021 average spread to 4.38% as against 5.42% in the same period last year and 4.50% in the previous quarter.

The banking spread has declined by 72 bps as compared to the same period last year. This is primarily due to decrease in overall Discount rate.

After consecutive decline for four months, Fresh spreads marked a 27bps increased to 4.73%. The increase in Fresh spread is primarily due to increase in lending rates of Fresh Disbursements which have inched to 8.02% in April-2021 as compared to 7.8% in March-2021.

Since the start of 2021, secondary market yields have observed an increase of 39/41/55bps in 6Months/12Months/3Year tenure respectively. The rise in these yields has been a result of demand catch up amid improvement in economic activity and rising oil prices leading to expectations of higher inflation.

Taking cue from the changing macroeconomic dynamics and manageable external account position, analyst believe that interest rates may witness a modest increase in 2nd Half of 2021 followed by further monetary tightening in 2022.

Going onward, it is expected that banking spreads will continue increasing as reversal of interest rate cycle is estimated to increase both lending and deposit rates.

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