Banking Spread Decreases to 4.4% in June

The average spread of the banking industry decreased to 4.4 percent in June as compared to Rs. 4.6 percent recorded in May mainly due to a modest increase in the average deposit rate of the commercial banks. According to the data released by the State Bank of Pakistan (SBP), the banking spread in June 2022 has declined by 19 basis points from the numbers of the last month. The average lending rate increased by 59 basis points to reach 11.4 percent during June. On the other hand, the average deposit rate surged by 72 basis points to reach 6.7 percent in the same month. The spread is the difference between the bank’s lending and deposit rate which constitutes a significant income of the commercial banks on account of earning through markup or financing. Overall, the banking spread witnessed a slight improvement of 40 basis points in the period of January to June which positively impacted the income of commercial banks. Analysts suggested that the banking spreads have started to shrink due to the early repricing of deposits. The trend is likely to maintain its momentum in the coming months before its expected improvement from the fourth quarter of 2022. Recently, the policy rate was revised up to 15 percent by the monetary policy committee which also revised the lending/ profit rates and deposit rates of commercial banks. This tightening of the policy will not be favorable for banks’ credit to the private sector but the increase in deposit rates might attract deposits to the banks. According to the SBP, the deposits of the banking sector have surged to a record level of over Rs. 22.8 trillion by the end of June 2022 as deposit rates of the banking industry to a handsome level of double-digit.