The minimum deposit rates on average monthly balance will further reduce the spreads of banking system with cost of deposits going up a bit more.

This would particularly affect those banks that have significant chunk in the Savings Accounts, as around 38 per cent of the banking deposits are in savings category. Experts from AHL observed that the amendment would be a big concern for both big 5 banks as well as mid-tier banks while most of the 3rd-tier category banks have already been providing over 6 per cent as well as on average monthly balances in order to compete with bigger banks.

Experts said that SBP has now come up with the objective to promote savings and increase the financial market depth and intermediation, this time clearly stating the rate to be applied on average monthly balance. Bilal Qamar, a financial analyst with JS, pointed out that banks were previously trimming overall deposit cost by paying on the minimum monthly balance rather than average in some cases. More concerning for the sector, in his view, is the clear signal from the Central Bank that is in no mood to go soft on Banks.

This also raises a question mark on expected 2H2013 spread uptick post monetary tightening, he added.In order to have a clear idea of impact of 6pc PLS on average monthly balance, experts have done a sensitivity analysis that, if saving deposits swing by 5pc (both higher and the lower side) based on the savings deposit specification provided by the SBP, it will impact the listed banks as per their deposit mix within the CASA account. The analysis is limited to 5pc volatility only due to constraints i.e. unavailability of PLS deposits of individual banks and, of course, actual average balance maintained by these banks.

According to a report of AHL, it was only eleven months back when the SBP announced a 100bps rise in minimum savings/ deposit rate, which took the banking sector by storm. As expected, the adverse impact was seen of this incremental rate shrinking the NIMs of the banks in CY12. All keen efforts by the banks to convince SBP revisit its decision have gone in vain so far, as SBP seems adamant about it. Waiting for a breather to come their way, banks once again get a setback with recent announcement by the SBP regarding the minimum PLS rate that states that: “

The State Bank of Pakistan in its circular dated 15th March, 2013 has decided for banks to pay minimum profit of 6pc p.a. on all local currency saving deposits on average monthly balances effective 1st April, 2013. The applicability of this rate would be on all the existing and new saving deposits in the rupee account, including term deposits.”