Observer Report
Beijing
The banking sector topped among businesses which thrived during the present times of economic crisis in Pakistan, reports China Economic Net (CEN).
Banks have continued to earn higher profits during these tough times as reflected by increasing spread of every bank – the difference between the interest rate which banks charge from borrowers and the interest rate they pay to the depositors. Higher spreads ensure higher profits to the banks. They are on a rise since the benchmark interest rate resumed its upward trajectory in January 2018.
The spreads increased 2.13 percentage points to 5.13% in December 2019 compared to 3% in December 2018, said Arif Habib Limited (AHL) while citing latest data from the central bank. “ “The spreads would continue to rise in the months to come even if the central bank cuts the benchmark interest rate on Tuesday (January 28) when it is scheduled to issue a new monetary policy statement for the next two months,” AHL Deputy Head of Research Tahir Abbas told The Express Tribune.
On average, banks charged 13.84% from borrowers and paid 8.71% to depositors – resulting in a spread of 5.13% in December 2019.
The spreads adjust in accordance with the prevailing benchmark interest rate, but with a lag of a few months from the time changes are made in the interest rate, he said. The monetary policy committee (MPC) of the State Bank of Pakistan (SBP) may do anything, including leaving the interest rate unchanged at the prevailing eight-year high of 13.25% next week. It might increase the rate to contain the continuously increasing inflation or slightly cut the rate to let the economic activities step up in the country.
According to Topline Securities, profit of banks listed at the Pakistan Stock Exchange (PSX) surged 48% to Rs45.5 billion in the third quarter (July-September) of calendar year 2019 compared to what they earned in the same quarter of 2018.
Cumulatively in the nine months (January-September 2019), the profit grew 20% to Rs127.7 billion, it added. BMA Research Executive Director Saad Hashmi said the other day that there was only one sector – banks – which managed to thrive under the recent economic reforms as majority of other sectors have been hit hard due to economic slowdown in the country. “Profit of the entire banking sector is estimated to grow by a hefty 40% in the calendar year 2020,” he said.
