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.