Ideally, greater liberalization with ensuing competition should have led to a narrowing down of spreads.
However, in case of Pakistan, there appears to exist a somewhat paradoxical situation, where banks are able to widen their spreads mainly because they enjoy comparative advantage in offering unique banking services, primarily because of the almost non-existent competition from nonbank finance companies and a dormant institutional finance industry as pension and insurance sector reforms have yet to catch up with other financial sector reforms.