www.thefinancialdaily.com  Bank investments grow 37 per cent Banking spreads down 7bps in May Mohammad Shariq KARACHI: Investments of scheduled banks have now reached the historic mark of Rs1.34 trillion at the end of 1HCY09 as compared to Rs0.98 trillion as on December 2008, reflecting a significant surge of 37 per cent in just 6 months, State Bank of Pakistan's (SBP) data reveals. The main reason behind the whopping increase is due to banks' new investment adventures in government securities like T-bills and PIBs, as per The Financial Daily analyst. He further stated that investments-to-deposit ratio has also increased to 32.74 per cent against 25.81 per cent as on Dec 2008. Citing the reason he said that SBP has taken Rs197 billion from scheduled banks to finance budget deficit in different auctions whereas equity market has also rebounded by 22 per cent at the end of 1HCY09.In addition, the deposit-base of the industry reached at the level of Rs4.12 trillion at the end of 1HCY09, while deposits as on Dec 2008 stood at Rs3.80 trillion, realising a growth of 8 per cent. The growth of deposits is sluggish when comparing with previous years because fresh depositors are keen to invest in different avenues like National Saving Schemes and many more. The main earning assets of the industry, i.e. advances have increased by mere 1 per cent. Advances stood at Rs3.16 trillion at 1HCY09 against Rs3.14 trillion as on December 2008. The advance-to-deposit ratio also decreased to 76.91 per cent at the end of 1HCY09 while 82.63 per cent as on Dec 2008. Furthermore, total provisions of the industry hiked by 19 per cent to 0.25 trillion against 0.21 trillion as on December 2008. Meanwhile, the weighted average spreads of the banking sector which are already on a decline, slipped to 7.47 per cent during May 2009 as compared to 7.54 per cent in the previous month, showing a decrease by 7 basis points. However, the difference of average lending rates and average deposit rates are higher by 13bps as against May 2008. According to segment-wise analysis, the weighted average spread of specialised banks rose by 37bps to 2.96 per cent on month-on-month basis but spreads of public, private and foreign banks dropped. The spread of foreign banks registered significant fall of 46 basis points. Having touched the highest level of 7.78 per cent in January 2009, the average spread of the sector was on the decline whereas the five-month average of 2009 (Jan-May) stands at 7.61 per cent still higher by 0.47 per cent over the average of same period last year. The rates on fresh deposits reached 7.94 per cent in the month compared to 7.77 per cent a month before while yields on loans disbursement were on the slump. As all banks want to mobilise funds to increase or maintain their deposits-base, they are increasing return on deposits. Medium- and small-size lenders are giving more return on deposits as compared to big lenders, which gives big banks a greater capacity to record healthy spreads. According to TFD analyst of banking sector, the overall average spreads of the year 2009 are expected to hover above 7 per cent. However, on month-wise basis the spreads of the sector may register a drop. Since, Kibor --which is usually used as a proxy for lending-- is gradually dipping due to declining interest rate scenario, resulting in shrinking of the banking spreads. Moreover, a further cut in the discount rate from 14 per cent may further hit the margins of the banking industry