04-26-2007, 11:27 PM
Fixed interest rate financing is prohibited by SBP regulations. Therefore, interest rate has to be the fluctuating rate. It is normally composed of some basic rate of banking market like LIBOR (London's Interbank Rate) or KIBOR (Karachi Interbank rates). This basic banking market rate depict the bank's average cost of financing. The banks add their spread (profit margin) to such basic rates for ensuring a return against the finances arranged by them for their customers.
SBP return meant the SBP's rate which it charges to the lending banks. Normally lending banks arrange their financing from SBP. SBP declares a basic bank rate which is meant for charging to the banks by SBP.
Lending bank's spread means the profit margin added as a percentage by a bank to SBP's basic bank rate for ensuring a return to the bank involved with the ultimate customer.
KIBOR + bps agreements. BPS stands for reflecting basic points in terms of percentage.
For example if interest rate is mentioned as KIBOR+ 250 BPS, it would mean that interest rate is KIBOR+2.50%.
Likewise KIBOR+200bps means KIBOR+2%.
Regards,
SBP return meant the SBP's rate which it charges to the lending banks. Normally lending banks arrange their financing from SBP. SBP declares a basic bank rate which is meant for charging to the banks by SBP.
Lending bank's spread means the profit margin added as a percentage by a bank to SBP's basic bank rate for ensuring a return to the bank involved with the ultimate customer.
KIBOR + bps agreements. BPS stands for reflecting basic points in terms of percentage.
For example if interest rate is mentioned as KIBOR+ 250 BPS, it would mean that interest rate is KIBOR+2.50%.
Likewise KIBOR+200bps means KIBOR+2%.
Regards,
