05-25-2007, 07:47 AM
<blockquote id="quote"><font size="1" face="Verdana, Tahoma, Arial" id="quote">quote<hr height="1" noshade id="quote"><i>Originally posted by derivativetrader</i>
<br /><blockquote id="quote"><font size="1" face="Verdana, Tahoma, Arial" id="quote">quote<hr height="1" noshade id="quote"><i>Originally posted by CBPian</i>
<br />You are correct .. we have negative real interest rates for many years which is one of the problems our saving rates are so low.
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What do you mean by saving rates here? Is it the proportion of income that people save or the interest rate that they can get on the saving account?
If you meant the former than your statement is ambigious. The possible reasons for larger spreads are
a. lack of comptition amongst banks operating in the market,
b. different credit profiles (how risky are is the counterparty) of custumers. e.g. bank's borrowing rates are lower because they are seen less risky than individuals, especially, in the ecoomy where we have seen many examples of loan defaults.
DT
<hr height="1" noshade id="quote"></font id="quote"></blockquote id="quote">
My friend.. of course I meant saving rate as a proportion of income.. it is simple economic theory that saving plummets when real interest rates are negative and there is no incentive to save.. normally then investment in other parts of the economy e.g. stock market and real estate increase as people perceive a better return in those sectors..
Your second point on spreads is theoretically correct but this is not what is happening in Pakistan.., banks have been given a literal free hand on spreads... spread over 8%-10% are ridiculous....
http//www.app.com.pk/en/index.php?option=com_content&task=view&id=8479&Itemid=2
In addition the banks have started these practices of charging unfair bank charges if your bank balance is below a certain amount... Few years ago I opened a bank account with Rs 2k and they did not tell me that the minimum balance was 5k .. they deducted 1000 in four months @ 250 a month... and all the banks are doing this.
<br /><blockquote id="quote"><font size="1" face="Verdana, Tahoma, Arial" id="quote">quote<hr height="1" noshade id="quote"><i>Originally posted by CBPian</i>
<br />You are correct .. we have negative real interest rates for many years which is one of the problems our saving rates are so low.
<hr height="1" noshade id="quote"></font id="quote"></blockquote id="quote">
What do you mean by saving rates here? Is it the proportion of income that people save or the interest rate that they can get on the saving account?
If you meant the former than your statement is ambigious. The possible reasons for larger spreads are
a. lack of comptition amongst banks operating in the market,
b. different credit profiles (how risky are is the counterparty) of custumers. e.g. bank's borrowing rates are lower because they are seen less risky than individuals, especially, in the ecoomy where we have seen many examples of loan defaults.
DT
<hr height="1" noshade id="quote"></font id="quote"></blockquote id="quote">
My friend.. of course I meant saving rate as a proportion of income.. it is simple economic theory that saving plummets when real interest rates are negative and there is no incentive to save.. normally then investment in other parts of the economy e.g. stock market and real estate increase as people perceive a better return in those sectors..
Your second point on spreads is theoretically correct but this is not what is happening in Pakistan.., banks have been given a literal free hand on spreads... spread over 8%-10% are ridiculous....
http//www.app.com.pk/en/index.php?option=com_content&task=view&id=8479&Itemid=2
In addition the banks have started these practices of charging unfair bank charges if your bank balance is below a certain amount... Few years ago I opened a bank account with Rs 2k and they did not tell me that the minimum balance was 5k .. they deducted 1000 in four months @ 250 a month... and all the banks are doing this.
