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Pakistan banking sector update

Weighted average banking sector spreads have registered at 7.35% in May’10, down by 4bpsMoM. This is due to both lower lending yields and higher deposit rates, by 2bpsMoM on average. Despite the recent slip, average spread across Apr’10-May’10 (7.37%) is 8bps higher than average spread of 7.29% in 1QCY10. In our view, maintenance of relatively high spreads is partly a reflection of prevailing risk averseness, judged from recent anemic loan growth and above-average lending spread over KIBOR. Moreover, the recently announced T-bill auction target of PkR535bn in 3QCY10 indicates private sector loan growth will likely continue to be slow in the near-term. We retain our view that asset quality parameters will separate the winners from the also-rans. From this vantage, we reiterate our preference for the bigger banks, whose NPL slippage levels have been sedate relative to the industry over the last six months.

AKD Research 
25 June 2010

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