A latest report issued by the State Bank of Pakistan reveals that not a single foreign bank is paying better returns to its depositors while they are among the banks with high banking spreads.

Foreign banks find it easy to mobilise deposits with lowest return rate due to public trust in them.

“The general perception that foreign banks provide better returns on deposits does not hold true over the period of analysis,” said the SBP report.

It further says that not a single foreign bank, with high banking spread is on the list of top 15 banks with high average deposit rates.

During the last three years, foreign banks have substantially increased their share in the banking industry of Pakistan. Standard Chartered Bank acquired the popular Union Bank and expanded its operations to smallest cities of the country.

Another banking giant, ABN Amro bought local Prime Bank and succeeded to expand its presence in almost all important places of Pakistan. During the same period, NIB Bank bought Picic Commercial which was a largest Pakistani bank.

Now the Barclays Bank got licence to do business in Pakistan. Barclays will invest $100 million to open 10 branches in major cities.

The State Bank’s latest analyseis of booming banking period of last three years reflects that all major banks, including foreign banks, made record profits, but did not pass on the profits to their depositors.

The big five banks are also among the top 10 banks with high banking spreads. With the exception of one bank, none of these banks are in the list of the top 15 banks with high average lending rates.

“This suggests that the high banking spread of these banks primarily arises from low average deposits rates,” said the SBP.

Factors, such as the confidence of the public in these banks due to their established reputation built over many years, and relatively large branch-network have contributed to higher proportion of their deposit base.

With the exception of one bank, none of the others are part of the list of the top 15 banks with high average deposits rates.

While big banks are generally ranked lowest in terms of average deposit rate, foreign banks’ ranking falls somewhere around the middle of the list.

“This again suggests that banks are taking advantage of low competition in mobilising deposits,” said the SBP report.

The SBP report said; “It is observed that mid-sized local private banks provide better returns to depositors.”

The ten, of the 15 banks, with high spreads are also ranked among the top 15 banks with higher average lending rates.

Moreover, four of the top five banks with respect to highest average lending rates are actively involved in consumer financing.

The outstanding amount of consumer financing of these banks constitutes 27.5 per cent of the overall lending to consumers by the banking sector, while their share in total outstanding advances is only 8.8 per cent.

“This implies that one of the contributory factors towards the high banking spread of these banks is their exposure towards consumer financing, which generally carries higher rates in line with its risk characteristic,” said the report.

Foreign banks were less in number, but their presence has substantially increased. The estimated share of foreign banks in the banking industry of Pakistan has reached 13 per cent. In terms of assets, foreign investors posses about 42 per cent banking assets of Pakistan.