Analysis of State Bank of Pakistan
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Transcript of Analysis of State Bank of Pakistan
The State Bank of Pakistan {SBP} 1
Central Banking
Introduction
A central bank is an apex
institute of the country about the
monetary point of view. A central
bank is the term, which is used to
describe the authority that is
responsible for policies, which can
affect a supply of money and credit
in the country.
In general, the central bank is a financial institution that manages the
government’s finance, controls the availability of money and credit to ensure the low
inflation, to boost up the high growth and stability to financial setup in the economy
and control the commercial banks.
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In the words of Lipsy, the central bank is defined as “a bank that acts as
banker to commercial banking system and to the government as well. In the
modern age, it is a government owned & operated institution that control the
banking system and act as the sole money issuing authority”.
So by above explanation, we can say that central bank has a pivotal position in
the banking system and have the ability to regulate & formulate the polices for
schedule commercial banks in the country. And it is also responsible for the financial
and economical stability of the country.
History – About Central Banks
In beginning of the banking sector, the concept about central bank was not
build. There were few of banks on local or zone levels with their own currency and
polices. These financial institutes were the pioneer of banking system in the history
of mankind.
In 1578, the conference in
Geneva, Switzerland, the economists
of developed countries took the
decision against the metallic or
commodity money and introduces
the fiat money in their economies.
The first bank whose considered, as first true central bank was “Bank of
Amsterdam” established in 1609. This bank was created by Scottish businessman
William Paterson to help the government of England in the situation of war.
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In 1661, the “Riks Bank of Sweden” was established as a joint stock bank to
lend the government funds and to act as a clearing house for commerce. And in
1694, the “Bank of England” was chartered to raise the taxes and borrowing finance
to war zone, which was created in the Austria, England, France & the Netherland.
The “Banque de France” was created in 1800 by Napoleon Bonaparte, after
the deep recession and hyperinflation in the French Revolutionary period. With the
passage of time, the concept of Federal Reserve System in the central bank was
emerged in the twentieth century. According to this concept, the currency is defined
in terms of a fixed weight of gold. The central bank held a large gold reserve to
ensure that their notes could be converted into gold any time. So, by this concept
central bank is a primarily consolidate who have ability to issue various instruments
which are commonly used as currency for the public and provide the financial
stability to the economy.
After the World War I, there was complete and complicated confusion was
created in the currency and exchange markets. This happened due to the issuance of
large withdrawals from the banks as loans to pay for the war expenses. At that time,
there was no any institution that supervises to the banks and also serves as the fiscal
agent for the governments.
To resolves these economic issues, the conference was held at Brussels in
1920. It was decided that there should be a central bank that control the money
supply and credit creation in the economy. After the World War II, every country has
their own central bank to control the monetary system in their economy.
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Central Bank in the Modern Economy
The governments can create central banks to perform a variety of functions.
These functions are actually performed just to stable the economic condition in the
country. The major functions of any central bank are may be as:
Government Bank towards the government
Apex Bank to control the banking sector
Monetary Policymaker of the country
Maintainer of Financial Stability
Handler of Future Challenges
As the government banker towards the government means that the
central bank can act as the repository organ for government receipts, collector agent
for taxes, and the auctioneer for government debt. Its also provides loans to
government for short terms with very small interest ratio.
As the apex banker towards the banking sector in the economy means that
the central bank can act as the repository organ also for the bank reserves,
supervisor and regulator of banks, the facilitator of interbank services and a lender
when banks need money.
As the monetary policymaker of the country means that the central bank
controls the amount of credit and money availability at the specific limits with the
weapons of interest rates and exchange rate. The most important parameter of any
policy is price stability in the value of money.
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As the maintainer of the financial stability means that the stability of
economy should be have the parameters of high employment and sustainable
economic growth in the positive direction. Because enough not any economy has
smooth business cycle without any up & down. The stock market and housing booms
are often associated with the business cycle.
As the handler of future challenges means that the central bank should have
abilities to handle the future happening events in the efficient manner. The
credibility is the major issues which is always unknown in the up coming days
because the inflation & deflation factors are dependent on it. Another challenge is
also present which may be happening in the future for the central bank financial
innovations.
And except from these objectives central bank may handle also various
matters indirectly. For example, political instability, sharp variations in oil prices,
taxation structure of the economy, development programs for the public, purchasing
& selling ability in the economy an so many other affairs also.
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Central Banks in the World
Now, there are 165 central banks in the world which control their own
economies in efficient manner as:
Sr. No: Country Central Bank1) Afghanistan Bank of Afghanistan2) Albania Bank of Albania3) Algeria Bank of Algeria4) Argentina Central Bank of Argentina5) Armenia Central Bank of Armenia6) Aruba Central Bank of Aruba7) Australia Reserve Bank of Australia8) Austria Austrian National Bank9) Azerbaijan Central Bank of Azerbaijan Republic10) Bahamas Central Bank of The Bahamas11) Bahrain Central Bank of Bahrain12) Bangladesh Bangladesh Bank13) Barbados Central Bank of Barbados14) Belarus National Bank of the Republic of Belarus15) Belgium National Bank of Belgium16) Belize Central Bank of Belize17) Benin Central Bank of West African States18) Bermuda Bermuda Monetary Authority19) Bhutan Royal Monetary Authority of Bhutan20) Bolivia Central Bank of Bolivia21) Bosnia Central Bank of Bosnia and Herzegovina22) Botswana Bank of Botswana23) Brazil Central Bank of Brazil24) Bulgaria Bulgarian National Bank25) Burkina Faso Central Bank of West African States26) Burundi Bank of the Republic of Burundi27) Cambodia National Bank of Cambodia28) Cameroon Bank of Central African States
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29) Canada Bank of Canada - Banque du Canada30) Cayman Islands Cayman Islands Monetary Authority
31)Central African Republic
Bank of Central African States
32) Chad Bank of Central African States33) Chile Central Bank of Chile34) China The People's Bank of China35) Colombia Bank of the Republic36) Comoros Central Bank of Comoros37) Congo Bank of Central African States38) Costa Rica Central Bank of Costa Rica39) Côte d'Ivoire Central Bank of West African States40) Croatia Croatian National Bank41) Cuba Central Bank of Cuba42) Cyprus Central Bank of Cyprus43) Czech Republic Czech National Bank44) Denmark National Bank of Denmark45) Dominican Republic Central Bank of the Dominican Republic46) East Caribbean area Eastern Caribbean Central Bank47) Ecuador Central Bank of Ecuador48) Egypt Central Bank of Egypt49) El Salvador Central Reserve Bank of El Salvador50) Equatorial Guinea Bank of Central African States51) Estonia Bank of Estonia52) Ethiopia National Bank of Ethiopia53) European Union European Central Bank54) Fiji Reserve Bank of Fiji55) Finland Bank of Finland56) France Bank of France57) Gabon Bank of Central African States58) The Gambia Central Bank of The Gambia59) Georgia National Bank of Georgia60) Germany Deutsche Bundes bank61) Ghana Bank of Ghana62) Greece Bank of Greece63) Guatemala Bank of Guatemala64) Guinea Bissau Central Bank of West African States
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65) Guyana Bank of Guyana66) Haiti Central Bank of Haiti67) Honduras Central Bank of Honduras68) Hong Kong Hong Kong Monetary Authority69) Hungary Magyar Nemzeti Bank70) Iceland Central Bank of Iceland71) India Reserve Bank of India72) Indonesia Bank Indonesia73) Iran The Central Bank of the Islamic Republic of Iran74) Iraq Central Bank of Iraq
75) IrelandCentral Bank and Financial Services Authority of Ireland
76) Israel Bank of Israel77) Italy Bank of Italy78) Jamaica Bank of Jamaica79) Japan Bank of Japan80) Jordan Central Bank of Jordan81) Kazakhstan National Bank of Kazakhstan82) Kenya Central Bank of Kenya83) Korea Bank of Korea84) Kuwait Central Bank of Kuwait85) Kyrgyzstan National Bank of the Kyrgyz Republic86) Latvia Bank of Latvia87) Lebanon Central Bank of Lebanon88) Lesotho Central Bank of Lesotho89) Libya Central Bank of Libya90) Lithuania Bank of Lithuania91) Luxembourg Central Bank of Luxembourg92) Macao Monetary Authority of Macao93) Macedonia, FYR National Bank of the Republic of Macedonia94) Madagascar Central Bank of Madagascar95) Malawi Reserve Bank of Malawi96) Malaysia Central Bank of Malaysia97) Mali Central Bank of West African States98) Malta Central Bank of Malta99) Mauritius Bank of Mauritius100) Mexico Bank of Mexico
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101) Moldova National Bank of Moldova102) Mongolia Bank of Mongolia103) Montenegro Central Bank of Montenegro104) Morocco Bank of Morocco105) Mozambique Bank of Mozambique106) Namibia Bank of Namibia107) Nepal Central Bank of Nepal108) Netherlands Netherlands Bank109) Netherlands Antilles Bank of the Netherlands Antilles110) New Zealand Reserve Bank of New Zealand111) Nicaragua Central Bank of Nicaragua112) Niger Central Bank of West African States113) Nigeria Central Bank of Nigeria114) Norway Central Bank of Norway115) Oman Central Bank of Oman116) Pakistan State Bank of Pakistan117) Papua New Guinea Bank of Papua New Guinea118) Paraguay Central Bank of Paraguay119) Peru Central Reserve Bank of Peru120) Philippines Bangko Sentral ng Pilipinas121) Poland National Bank of Poland122) Portugal Bank of Portugal123) Qatar Qatar Central Bank124) Romania National Bank of Romania125) Russia Central Bank of Russia126) Rwanda National Bank of Rwanda127) San Marino Central Bank of the Republic of San Marino128) Samoa Central Bank of Samoa129) Saudi Arabia Saudi Arabian Monetary Agency130) Senegal Central Bank of West African States131) Serbia National Bank of Serbia132) Seychelles Central Bank of Seychelles133) Sierra Leone Bank of Sierra Leone134) Singapore Monetary Authority of Singapore135) Slovakia National Bank of Slovakia136) Slovenia Bank of Slovenia137) Solomon Islands Central Bank of Solomon Islands
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138) South Africa South African Reserve Bank139) Spain Bank of Spain140) Sri Lanka Central Bank of Sri Lanka141) Sudan Bank of Sudan142) Surinam Central Bank of Suriname143) Swaziland The Central Bank of Swaziland144) Sweden Sveriges Riks bank145) Switzerland Swiss National Bank146) Tajikistan National Bank of Tajikistan147) Tanzania Bank of Tanzania148) Thailand Bank of Thailand149) Togo Central Bank of West African States150) Tonga National Reserve Bank of Tonga151) Trinidad and Tobago Central Bank of Trinidad and Tobago152) Tunisia Central Bank of Tunisia153) Turkey Central Bank of the Republic of Turkey154) Uganda Bank of Uganda155) Ukraine National Bank of Ukraine156) United Arab Emirates Central Bank of United Arab Emirates157) United Kingdom Bank of England
158) United StatesBoard of Governors of the Federal Reserve System
159) Uruguay Central Bank of Uruguay160) Vanuatu Reserve Bank of Vanuatu161) Venezuela Central Bank of Venezuela162) Vietnam The State Bank of Vietnam163) Yemen Central Bank of Yemen164) Zambia Bank of Zambia165) Zimbabwe Reserve Bank of Zimbabwe
There are various ups & downs in the central banking history but the key force
is the independence of central bank towards their policies without any pressure from
the government. We know that the original central bank should be a private and
independent organization. It should have free & fair authority to maintain their
affairs in the better interest of the economy.
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The Reserve Bank of Central India (RBI)
The central banks are the innovation of the early twentieth century. The
Reserve Bank of India was the fist central bank of the Sub-continent. The Reserve
Bank of India (RBI) was established on April 1, 1935, according to the provision of
Reserve Bank of Indian Act, 1934 by The Great Britain.
The head office of the RBI
was initially established in Kolkata but
was permanently moved to Mumbai in
1937. The RBI was established on the
recommendation of the “Hilton Young
Commission” for the Central India by
British Empire. This commission
submitted their report in the year 1926 to
Legislative Assembly of England.
The functions and focus to
establishment of this bank in Central India was to change the economic environment
in this British Control Territory. Following were the basic constituted to establish this
reserve bank as:
To regulate the issue of bank notes
To maintain the reserves to secure the monetary stability
To operate the credit and currency system
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We know that, Burma (Myanmar) was
no more in Indian Union from 1937 but
the RBI continued their act as the central
bank for Burma upto April, 1947. And,
after the partition of Central India, the
RBI also served as the central bank of
Pakistan upto June 1948.
Pakistan - At the Time of Independence
We know that before the
independence August 1947, the RBI was
the central bank for Pakistan’s Economy
under the “Monetary System & Reserve
Bank Order 1947”. The immediate and
foremost task for the Pakistan’s
Government was to establish a central
bank for the issuances of independent
currency, independent banking system
and regulate the economic activities in the
positive manners.
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But due to innumerable complex problems, it was decide that the RBI would
continue to act as the central bank and currency authority for the Pakistan till
September, 1948.
The main provisions of “The Monetary System & Reserve Bank Order 1947” were as:
The RBI would be the sole note issuing authority in Pakistan
The Indian Notes will remain legal tender in both Pakistan & India until
30th September, 1948.
The RBI would transfer the assets of equal value to Pakistani notes to
the Pakistan’s Government after the date of 30th September, 1948.
The Pakistan’s Government would also issue coins in the country after
the 30th September, 1948. The coins issued by the Indian’s Government
would remains legal tender in Pakistan for at least one year from the date id
issue of Pakistani coins.
The RBI would perform the full functions of “Central Bank of Pakistan”
upto September 23th, 1948.
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Establishment of State Bank of Pakistan
Immediately after the independence,
the newly born state was faced with a serous
banking situation due to the migration of 6.5
millions people. The RBI showed reluctance
in solving the banking crisis in Pakistan. It
rather created further difficulties by refusing
to give Rs. 550 millions which was the share
cash balance of Pakistan.
Therefore, it is decided to
establish own currency regulating authority & policymaker institute. For this purpose
Governor General Quaid-e-Azam Muhammad Ali Jinnah issued order for the
establishment of State Bank of Pakistan on July 1st, 1948. The RBI relieved of its
functions & orders in the favor of Pakistan from the first of July, 1948.
Under the State Bank of Pakistan Order 1948 issued by Quaid-e-Azam
Muhammad Ali Jinnah, the state bank of Pakistan was charged with the duty to
"regulate the issue of bank notes and keeping of reserves with a view to
securing monetary stability in Pakistan and generally to operate the currency
and credit system of the country to its advantage".
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The Governor General of Pakistan Barrister Quaid-e-Azam Muhammad Ali
Jinnah, while inaugurating the State Bank of Pakistan on July 1st, 1948, said:
“The bank
symbolized the
sovereignty of our
people in the financial
sphere. The Western
Economic System has
created many problems
for humanity. The
Western Economic
System would not help
us in setting up a
workable economic order. We should evolve an
economic system based on Islamic concept of
justice and equality”.
On December 30th, 1948 the British Government's commission distributed the
RBI’s reserves between Pakistan and India with the ratio of 30% and 70% for Pakistan
& India, respectively. The loss of Rs. 230 millions which incurred in the transition to
independence were taken from Pakistan.
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The State Bank of Pakistan (SBP)
Introduction – The SBP
The State Bank of Pakistan (SBP) is the central bank of Pakistan. This bank is a
body corporate by the name of “State Bank of Pakistan” or “Bank Daulat-e-
Pakistan”, which having the perpetual succession and a common seal. According to
the constitutional point of view, the “State Bank of Pakistan Order, 1948” established
it in the July 1948.
The SBP is an apex institution of the Pakistan for the money supply & banking
companies. It has fully charged with the responsibility for maintaining the internal as
well as external affairs about the stability of economy of Pakistan. It has direct effect
in the promotion of economic development & public developmental programs in the
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country. The headquarters of SBP is located in the financial capital of Pakistan,
Karachi with its official’s headquarters in the capital, Islamabad.
Major Functions and Responsibilities of SBP
We know that every central bank is responsible for the money supply & credit
creation in the financial market to maintain the stability of the economy. According
to the State Bank of Pakistan Act, 1956, the Central Board of Pakistan has following
functions & responsibilities in order to secure monetary stability and soundness of
the financial system.
To formulate & monitor the monetary and credit policy
Have a sole right to issues notes (legal tender)
To regulates & supervise the banking sector
To monitor the price development in the market
To manage the foreign exchange in the financial market
The clearing house for the commercial banks
As an advisor to government
The lender of last resort for commercial banks
To monitor the economic activities in the country
To collect the revenues for the government
To manage the public debt in efficient manner
To sale & purchase the prize bonds & others monetary certificates
To approve the credit requirements for the private sector
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To submit their annual report to National Assembly
To monitor the balance of payment & trade
Act as advisor to FBR about taxation recovery affairs
To issue monetary legal tenders to stable the economic transitions
To settle the accounts of federal and provincial governments
To deals with Banking Services Corporation (BSC) in public interests
All others functions & responsibilities which are assigned by the Federal
Government of Pakistan
About - The SBP Act, 1956
We know that, the SBP was established by the short order of Governor
General of Pakistan to regulate the economy on hanky-panky basis. The State Bank of
Pakistan Order, 1948 was not able to provide the profit motive guidelines in its
operations. To fulfill these gapes parliament of President Sikander Mirza and Prime
Minister Ch. Muhammad Ali passed this act in the larger & better interest of
Pakistan.
The State Bank of Pakistan incorporated under the SBP Act, 1956 (Act No.
XXXIII of 1956) This Act provides an order for the establishment of State Bank of
Pakistan. It’s also tells by constitutional point of view, the state bank has the ability
to provide & regulate the monetary and credit system in the Pakistan and to foster
its growth in the best national interest with a view to securing monetary stability and
fuller utilization of the country’s productive resources in very efficient manner.
This Act also provides a very vast structure of the SBP with assigning their
rights & obligation to towards each other and towards others. Its give fully fledge
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guarantee from the Federal Government to handle their assign matters in their own
will but in the better interest of the Pakistan.
History – The SBP in Last 60 years
The SBP began their operations on July 1, 1948 and became as a sole not-
issuing authority in Pakistan, but the Pakistan’s Government at that time had no note
printing press to print them on. The SBP faced the huge task of establishing a banking
system after the collapse at the time of partition. The first day of SBP has total bank
deposits of Rs. 1.1 Billion, which contain 73% by foreign banks whose activities were
largely confined to foreign trade.
In the first 18 months to the operations of SBP, 51 new branches were opened
in both East & West Pakistan. By December 1949, there were 35 scheduled banks in
Pakistan, of which four were Pakistani, 23 Indian, and eight were foreign exchange
banks. As the number of branches of commercial banks expanded in the 1950’s,
these banks continued to mobilize increasing domestic savings, which were hen
channeled into the demand for credit in the economy.
In 1963, there were 957 branches of commercial
banks in both wings of Pakistan. In this situation, the
SBP ordered to commercial banks to open one branch in
East Pakistan for each branch they had in the West
Pakistan. The fears that the SBP’s policy of opening new
branches in unbanked areas would be quite unsound
proved to be misplaced. Within the year of their establishment, most of the branches
had become viable. According to the SBP’s, officially record as:
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“The branch licensing policy was not meant to obstruct the growth of the
banking system but to foster it in the best national interest”.
In July 1969, the Indian Government had taken 14 major banks into the state
ownership. This influenced the thinking amongst planners in Pakistan. Of the four
largest banks in Pakistan, only one (National Bank of Pakistan) was state controlled,
while the industrial families such as the Habibs, Saigols and Adamjees owned the
other three. These four banks monopolized 75% of total deposits and 2-3rd of earning
assets. This sort of collusion gave rise to a further concentration of wealth.
However, the Prime Minister of Pakistan Mr. Zulfiqar Ali Bhutto (ZAB) wants
to nationalize all the banks and most prior organizations in the better and larger
interest of Pakistan, and also to get the rid from the structural & functional gaps,
corruption, nepotism, adverse activities in these organizations. And the
nationalization was the most adoptable & the international way of business in
1970’s.
In September 1970, the SBP report revealed that only 88 accounts in Pakistani
banks had access to as much as 25% of the total bank credit . In July 1974, the “Bank
Nationalization Ordinance 1974” was promulgated by the PM ZAB, according to
which the federal government has exclusive rights of ownership, management and
control of all banks in Pakistan. The shareholders of banks were compensated for
their holdings in the form of Federal Bonds repayable on par at any time within a
period of 15 days. The 14 banks were nationalized, of which 13 were merged into
five banks.
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Most of the parameters of SBP were remains
unchanged until 1973 because the SBP Act, 1956
have not enough data, which is required for the
structure and function of any organizational bank.
To fulfill this gap, PM ZAB had issued an order to
nationalize the State Bank of Pakistan under the
“Nationalization of Bank Act, 1974”.
The official history of SBP writes, “This was perhaps the unique case in the
banking world where the central bank of the country was simultaneously
nationalized along with the commercial banks”.
Due to this great step, the scopes and functions of SBP were considerably
enlarged and changed. The SBP became the purely government owned institution.
The powerful and lucrative banking sector was in the hands of government, it was
open to political pressure and misuse.
In 1979, Pakistan’s Government embarked an extensive process of Islamization
in the financial sector and in others important arenas. The 2 months after coming to
power, in September 1977, General Zia-ul-Haq has asked the Council of Islamic
Ideology (CII) to prepare a blue print on an interest free economic system in the light
of Islamic teachings. Due to this aspect, the SBP wants immediate removal of interest
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from financial institutions. The CII recommended also some financial institutions to
removal of interest phenomena from their structure.
In January 1981, all commercial banks
set up separate counters to accept the non-
interest-bearing profit and loss deposits
with the order of SBP. This order further
contains that, from the 1985 to onward, no
bank is allow to accept interest-bearing
deposits, except foreign currency accounts.
In addition to these steps, the SBP has also
launched three Islamic modes of financing
as Musharaka, Murabeha & Mudaraba.
In 1988, the structural adjustment program began actively was the key
element of transformation after the great incident of Berlin Wall in 1989 and return’s
of democracy in Pakistan. Under these reforming steps, the government issued
licenses to 10 new banks in private sector with the advisory will of SBP.
The process of privatization to banking sector & most prior organizations was
launched by PPP’s governments, to adopting the international way of business. The
SBP was also given considerable autonomy to act somewhat more neutrally.
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Mr. Ashafaque Hassan Khan, explains about the structure and function of the
financial sector b/w 1972 and 1991 in these words as,
“Prior to undertaking financial sector reforms the hallmark of Pakistan’s
financial sector has been the direct controls on interest rate movements,
domestic credit controls, high reserve requirements, segmented financial
markets, the absence of well-developed securities commercial banks serving as
the captive institutions. In particulars, the policies of imposing ceilings on
interest rates accompanied by direct and rational allocation of credit to priority
sectors at low rates have led to widespread ‘financial repression’ in Pakistan.
The policies are seen to impede financial depending which, in turn, weakens an
important set of impulses to faster economic growth”.
A large number of reforms have taken place in the financial sector since 1992,
until now. These reforms includes the opening of new banks in private sector, to
privatize the nationalized banking sector, to decontrol the interest rates from
government intervention, to free the policymaking bodies, to privatize those public
organizations which show huge deficits annually, to improve the quality of financial
intermediation, to expands the financial sector, and creates an rapid increase in the
financial institutions.
In November 1993, the government took some steps against the monetary
policy & monetary management of the SBP, which have been undertaken by the
government’s agreements with the IMF and World Bank. By these decisions, the SBP
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has no ability to introduce any new concessional lending scheme, and the rates of
returns will be liberalized, according to the latest “Policy Framework Paper” (PFP) of
the Federal Government.
Further it has been decided that the SBP’s lending rates to specialized financial
institutions will be reviewed in order to step will be taken to reduce the concessional
schemes and mandatory credit in total credit will be reduced, consistent with the
objectives of decreasing the concentration of wealth & credit in the economy.
In February 1994, the federal government provides full autonomy to State
Bank for the financial sector reforms in efficient manner. In January 21, 1997, this
autonomy was further strengthened when the government issued three Financial
Ordinances in the favor of the State Bank of Pakistan Act, 1956, Banking Companies
Ordinance, 1962 and Bank Nationalization Act, 1974. All these changes gave a full
and exclusive authority to the State Bank to regulate the banking sector, to conduct
an independent monetary policy and to set limit on government borrowings from the
State Bank of Pakistan.
The official records of 1993-99 showed a noticeable difference in efficiency
and performance b/w the state-owned nationalized banks and commercial banks.
The foreign banks had 31.4% growth rate but nationalized banks had 12.7% only. The
gross revenues of foreign banks were also more than the nationalized banks of the
country.
The financial year 1998/99 was the
one of the worst, in terms of economic
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indicators, according to the SBP’s Annual Report and Pakistan Economic Survey’s
Report.
Although the May 1998 nuclear tests made the Pakistan’s strong but creates
deteriorated situation for Pakistan about economic point of view. The SBP’s Annual
Report for 1998/99 summarized as:
“The developments in May,
1998 had a major impact on
balance of payments, net foreign
assets of the banking system, stock
market and the exchange rate. The
nuclear blast by India immediately
affected the investor’s confidence
and the stock market declined, free market exchange rate depreciated, and
foreign currency deposits were withdrawn significantly during May 11-28, 1998.
Pakistan’s response on May 28, 1998 to the Indian detonation, followed by
economic sanctions by the United States, and a restraining stance adopted by
the G-7 countries with regard to the lending by the international financial
institutions, further contributed towards the erosion of confidence and reeking
of the budget and balance of payments”.
In January 2002, the Privatization Commission of Pakistan (was set up in Jan
1991) privatize the SBP in their status point of view. The government also introduced
revolutionary changes in the structure & functions of SBP, by commencing the
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Banking Services Corporation (BSC) by the ordinance of Chief Executive Commander-
n-Chief General Pervaiz Musharaf. The State Bank of Pakistan Act 1956, with
subsequent amendments is in operations today.
Strategic Objectives of SBP
We know that the functions & operations of SBP are common like other
central bank of the any country.
1. To Broaden the Access of Financial Services
2. To Ensure the Soundness of Financial Sector
3. To Maintaining the Price Stability with Positive Growth
4. To Monitor the Exchange and Reserve Management
5. To Strengthen the Payment System
1.To Broaden the Access of Financial Services
We know that the co-relation b/w economic growth, development and
financial inclusion in the terms of Development Economics are major relationship.
From the first day the SBP is in effort to provide an enabling environment for
financial broadening with the help of others stakeholders and the banking sector. In
this perspective, Small & Medium Enterprises (SME) & Micro Finance, Islamic
banking, Housing & Infrastructure financing and agriculture credit are the main areas
of focus in its development.
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The State Bank of Pakistan {SBP} 27
2.To Ensure the Soundness of Financial Services
The prime responsibility of SBP is to ensure that the financial system,
particularly the banking system, is robust and well functioning in the economy. For
this purpose the SBP continuously work for the improvement of the banking
infrastructure, optimize its market potential and more importantly monitor the risk
profile of banking institutions to safeguard the interest of depositors. The Minimum
Capital Requirement (MCR), development of Roadmap for implementation of Basel-
II, enhancement of corporate governance standards and improvement, Islamic &
Microfinance institutions are the major developments by SBP.
3. To Maintain the Price Stability with Positive Growth
The price stability is generally and widely considered as the most
primary objective of central banks. The price stability simply means the avoidance of
high and volatile rate of inflation. The high and volatile inflation creates the
uncertainty & distortions in an economy and also affect the investment and growth
momentum. In this perspective, the SBP adopt the same policy of others central
banks, the low and stable inflation so that it does not hurt economic growth. For the
low & stable inflation the adjustments in monetary policy for the short run is
considered as the best weapon.
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The State Bank of Pakistan {SBP} 28
4. To Monitor the Exchange and Reserve Management
The Exchange Market is the source of Reserves Management, both of
them directly proportional to each others, because the value of money is dependent
on the others forex rates. And, the Exchange Market is the most sensitive transaction
market in the world, because the any event in the country can directly affect the
exchange rates. For the betterment of Exchange Markets, the SBP allowed to banks
to raise the Foreign Exchange (FCY) Loans from International Financial Institutions.
The Non-residents investors have been allowed to trade in shares through Special
Convertible Rupee Account. Furthermore, in order to further liberalize in the trade
regime, the SBP allowed Advance Payments against Letters of Credit. The SBP also
strengthen the regulatory framework about Exchange Companies in Pakistan.
5.To Strengthen the Payment System
The payment system is the backbone of any financial dispensation, and
the robust payment system is pillar of any sound economy. The Information
technology (IT) advancements give the revolutionary changes in the payment
systems. The SBP endeavors the payment system by the international best practices
and to be responsive to emerging the domestic and international requirements.
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Executive Bodies of the SBP
Governor of SBP
Syed Salim Raza took over post of Governor of
State Bank of Pakistan, on January 02, 2009 as the
15th Governorship. The assumption behind to take
over the office of Governor was that, Mr. Raza was
the Chief Executive Officer (C.E.O) of Pakistan
Business Council (PBC) since February 2006. Mr.
Raza, the master’s degree holder from Oxford
University with the experience of 36 years in the
international banking. His business experience covers credit and corporate finance,
real estate and global asset (bonds & equities) management.
He was the executive employee of Citibank for number of years and also was
the Country Head in Pakistan from 1983 to 1987. He has been instrumental in
preparing innumerable reports, surveys and recommendations covering a variety of
subjects including a dynamic role for public-private partnerships, the broadening and
deepening of capital markets, the creation of long-term corporate debt markets, the
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The State Bank of Pakistan {SBP} 30
corporate governance, the competitiveness capacity building and a variety of other
associated themes.
The Board of Members
Sr. No. Name Status
1. Syed Salim Raza Chairman/Governor
2. Salman Siddique Member
3. Kamran Y. Mirza Member
4. Zaffar A. Khan Member
5. Tariq Sayeed Saigol Member
6. Mirza Qamar Beg Member
7. Asad Umar Member
8. Waqar A. Malik Member
9.Aftab Mustafa Khan Corporate
Secretary
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History of Governors of SBP
Sr. No: NameJoin the
Office
Leave the
Office
1 Zahid Hussain 1948 1953
2 Abdul Qadir 1953 1960
3 Shujaat Ali Hasnie 1960 1967
4 Mahbubur Raschid 1967 1971
5 S.U. Durrani 1971 1971
6 Ghulam Ishaq Khan 1971 1975
7 S. Osman Ali 1975 1978
8 A G N Kazi 1978 1986
9 V.A. Jaffrey 1986 1988
10 I.A. Hanfi 1988 1989
11 Kassim Parekh 1989 1990
12 Mohammad Yaqub 1993 1999
13 Ishrat Husain 1999 2005
14 Shamshad Akhtar 2006 2009
15 Syed Salim Raza 2009 Present
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The State Bank of Pakistan {SBP} 32
Hereciary of SBP
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GovernorDeputy Governor (Banking Sector)
Deputy Governor (Corporate Sector)
Chief Economist (Reserach)
Deputy Governor (Banking Sector)
Executive Director (Finance
Department)
Executive Director (Banking
Supervision)
Executive Director (Banking Policy &
Regulation)
Deputy Governor (Corporate Sector)
Comptroller Finance (Financial Markets
& Reserve Management)
Group Head (Human Resources)
IT & Museum Group
Federal Government
Chief Economist (Reserach)
Economic Advisor (Policy & Reserach)
Director (Monetary Policy)
Director (Economic Analysis)
Director (Reserach)
Director (Statistics & Data Wearhouse)
Director (Finance Stability)
Chief Librarian (Library)
The State Bank of Pakistan {SBP} 33
Mission – The SBP
The Pakistan (SBP) is working with the mission to promote monetary and
financial stability and want to achieve a sound and dynamic financial system with the
sustained and equitable economic growth and prosperity in the larger interest of
Pakistan. The primary function o0f this organization is issuance of notes, regulates
the financial system, lender of the last resort, and conduct with monetary policy in
efficient manner. The SBP vision is not to become a monopolist but to become a
serving institute of the Pakistan. The money supply & credit creation should be in the
public interests.
Departments – The SBP
Following are the departments which are working in the State Bank of Pakistan
(SBP) to manage all the affairs & functions which are allocated by Federal
Government of Pakistan as:
The Agricultural Credit Department
The Banking Inspection Department
The Banking Policy & Regulations Department
The Banking Surveillance Department
The Business Support Services Department
The Domestic Market & Monetary Management Department
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The State Bank of Pakistan {SBP} 34
The Economic Analysis Department
The Exchange Policy Department
The External Relations Department
The Finance Department
The Financial Markets Strategy & Conduct Department
The Financial Stability Department
The General Counsel's Office
The Human Resource Department
The Information Systems & Technology Department
The Infrastructure / Housing Finance Department
The Internal Audit & Compliance Department
The International Markets & Investments Department
The Islamic Banking Department
The Monetary Policy Department
The Museum & Art Gallery Department
The NIBAF Karachi & Islamabad
The Office of the Corporate Secretary
The Off-site Supervision & Enforcement Department
The Payment System Department
The Research Department
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The Risk Management and Compliance Department.
The Real Time Gross Settlement System (RTGS System)
The Microfinance Department
The SME Finance Department
The Statistics and Data Warehouse Department
The Strategic and Corporate Planning Department
The Training & Development Department
The Treasury Operations Department
To deal with banking sector in the country, Chief Executive General Musharaf
ordered to SBP to establish a separate & independent institution under the head of
SBP. Now all the banking sector affairs & modifications are in the hands of “Banking
Services Corporation”, which act as subsidiary to SBP.
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The State Bank of Pakistan {SBP} 36
Currency of Pakistan
Following notes are working in Pakistan as the currency standards…
Value Sketch
1 Rupee
2 Rupees
5 Rupees
10 Rupees
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The State Bank of Pakistan {SBP} 37
20 Rupees
50 Rupees
100 Rupees
500 Rupees
1000 Rupees
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The State Bank of Pakistan {SBP} 38
5000 Rupees
Banking Services Corporation (BSC)
With the changing environment in the banking sector on international level
the government took decision to establish an organization which controls the money
supply & truncations policies in the banking sector under the supervision of SBP. For
this purpose, Government of Pakistan introduced the Banking Services Corporation
(BSC), as the subsidiary organization to the State Bank of Pakistan in January 2002.
Key Functions of BSC
Following are the major functions and operational areas, by which BSC
performs their duties in very efficient manner under the head of SBP as,
Currency Management in Banking Sector
Foreign Exchange Operations and their Adjustments
Export Finance Schemes
Payment and Settlement Systems
Banking Services to the Government
Operational Work on Government Securities
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The State Bank of Pakistan {SBP} 39
Except from these, the SBP is now working very closely with BSC to develop a
strategy for the withdrawal of some old functions and perform consolidation b/w
SBP & BSC.
Departments of BSC
Following are the departments which are working in the supervision of BSC. All
of these departments are isolated from the departments of SBP but the co-
ordination b/w BSC & SBP’s department is handle by an executive post.
Accounts Department
Currency Management Department
Internal Audit Department
Development Finance Support Department
Engineering Department
Foreign Exchange Operations Department
Foreign Exchange Adjudication Department
Internal Bank Security Department
General Services Department
Personnel Management Department
Training and Development Department
Quality Assurance Department
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Boards of Directors of BSC
Following are executive authorities who supervise this organization as,
Name Status
Syed Salim Raza (SBP) Governor/Chairman
Mr. Qasim Nawaz Managing Director
Mr. Mohsin Aziz Member
Mr. Kamran Y. Mirza Member
Mr. Zaffar A. Khan Member
Mr. Tariq Sayeed Saigol Member
Mr. Mirza Qamar Beg Member
Mr. Asad Umar Member
Mr. Waqar A. Malik Member
Mr. Salman Siddique Member
Mr. Aftab Mustafa Khan Corporate Secretary
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Supervision of SBP
The BSC is under the supervision of SBP because central bank has abilities to
give the directions to BSC, but only in these conditions as,
In the larger Public Interest
To prevent the affairs of Banking Sector, in the legal interests of its
customers
To secure the Proper Management of the BSC.
It is necessary by time to time to issue directions to BSC by SBP. The BSC shall
be bound to comply with such directions. The SBP may, modify, cancel or confirm
any direction at any time by their own will. The boards of directors of State Bank are
not able to become the member of BSC also, but except from Chairman. The
employees of SBP and BSC may be same on the basis of additional duties or co-
ordination cases.
Powers & Authorities of BSC
The BSC is a corporate body which having the perpetual succession and a
common seal, it may sue or be sued. The BSC has ability to handle the receipt, supply
and exchange of bank notes and coins which are act as legal tender in the market.
Also performs the operations of (issue, supply, sale, encashment) of prize bonds.
The BSC have powers to make rules & regulations with the prior approval of
the State Bank. The rules & regulations must not be inconsistent with the provisions
of BSC Ordinance, in such case, SBP amend or rescind this rule.
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Chairman (Governor of SBP)
Board of Directors
Managing Director (C.E.O)
Head Office (Karachi)
Field Offices
The State Bank of Pakistan {SBP} 42
The Managing Director of BSC is appointing by SBP with the advice of Finance
Ministry, but he should not be a member of SBP. The Managing Director is the Chief
Executive Officer in nature. The liquidation of BSC is not direct happen by an order or
resolution of State Bank. In this manner, the SBP give an advice to Federal
Government of Pakistan.
Hereciary of BSC
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National Bank of Pakistan (NBP)
Introduction
The Government of Pakistan wanted
own bank which has no foreign influence in it
to fulfill the day-to-day transactions in the
banking sector. For this purpose, the National
Bank of Pakistan (NBP) was established under
the “National Bank of Pakistan Ordinance,
1949” as the government-owned bank as
subsidiary of State Bank of Pakistan in November 21, 1949.
So, from the first day, the NBP is working as the agent of SBP, wherever the
State Bank has not its own branch. It also performs government treasury operations
in very efficient manner.
Now, the NBP is the largest commercial bank which operating in Pakistan. Its
balance sheet size is tremendous as compared to the any other bank commercial in
Pak-Economy. Recently it has redefined its role and takes a better move from a
public sector organization into a modern commercial banking. The NBP headquarters
is located in Karachi, with over 1,200 branches country wide. The bank provides both
commercial and public sector banking services in very efficient manner. It has assets
worth of US $12.35 Billion.
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The NBP is not a national bank, its also has offices in USA, Canada, Germany,
France, Bahrain, Egypt, Bangladesh, Hong Kong, Japan, South Korea, China,
Afghanistan, Turkmenistan, Kyrgyz Republic, Kazakhstan, Uzbekistan and Azerbaijan
which are working in the better interest of Pakistan.
Board of Directors
Islamic Banking by NBPPrepared by: Ali Raza / Ali Burhan / Hafiz Mehmeez
Sr. No. Name Status
01 Mr. Syed Ali RazaChairman &
President
02 Mr. Muhammad Raheel Sarshar Director
03 Mr. Mian Kausar Hameed Director
04 Mr. Ibrar A. Mumtaz Director
05 Mr. Tariq Kirmani Director
06 Mr. Sikandar Hayat Jamali Director
07 Mr. Azam Faruque Director
08Mr. Muhammad Ayub Khan
TarinDirector
09 Mrs. Haniya Shahid Naseem Director
10 Mr. Ekhlaq Ahmed Secretary
The State Bank of Pakistan {SBP} 45
The NBP established their First Islamic Banking Branch in Karachi on December
15, 2006 by order of SBP. The two more branches started their operations in the end
of 2007, in the Peshawar and Lahore for Islamic Banking promotion. At present,
there are 8 Islamic Banking branches are functional all over Pakistan. Mr. Shafiq Khan
is newly appointed Group Chief of Islamic Banking Group. For Islamic Banking advisor
is Mr. Mufti Abdul Sattar Laghari.
The subsidiaries under the head of NBP are NBP Capital, NBP Modaraba
Management Company, NBP Exchange Company, Taurus Securities, NBP Almaty et
al.'
State Bank of Pakistan Library
For any organization, especially which is based upon on the sensitive natures
required huge research & data to manage their structure & policies. For this purpose,
the SBP established an information cell for their Research Departments and other
employees in the form of digital & manual library, in 1949 at Central Directorate,
Karachi. Now the SBP Library has their own specific building in Karachi.
The SBP library has a rich collection of books, technical reports, Government
documents, periodicals and magazines mainly relating to the subjects of Economics,
Banking, Finance, Management, Commerce, etc. the books on different languages
are also present here. Over the years, the library has grown into one of the biggest
and well-stocked libraries of the country on these subjects.
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The State Bank of Pakistan {SBP} 46
In addition to printed resources, the library provides online access to research
journals and a host of digital resources to the readers, and provides the adequate
modern facilities and services to its
readers in a very friendly & conducive
environment.
Policy about the
Collection
The SBP library has been financed
by annual budget as well as special
grants for the procurement of books
and periodical literature. The library adheres the policy to spend its annual and
special grants into the ratio of 75:25 b/w the major & minor subjects. (The major
subject includes Economics, Banking, Finance, Commerce, Monetary Systems, etc & a
minor subject includes the Islam, Geography, Politics, Languages, etc).
This library also have a Books Selection Committee, comprising highly qualified
and experienced researchers and bankers, meets on monthly basis to select the
latest books received from market. Moreover, requests from departments, individual
researchers or other employees also handle in very effective manner.
The SBP library also receives publications of central banks from United Nations
organs including IMF, the World Bank, ESCAP, WTO, UNCTAD, etc. & others
international organizations like OPEC, OECD, Asian Development Bank, Islamic
Development Bank, Bank for International Settlements, etc. the Budget Documents
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of Pakistan & various countries, Officials Gazettes, Governmental Published Reports
on various topics, United Nations Publications and so many.
Books in SBP Library
Subject Books
Economics, Banking, Finance & Commerce 32,000
Management, Accountancy & IT 5000
Islam 5000
General & Applied Sciences 5000
History, Biographies, Geography & Travel 5000
Art & Literature 6000
Laws, Political Science, Agriculture, Education,
Sociology, Psychology20,000
English & others English terms in various subjects 65,000
Urdu & others Oriental Languages 12100
Regional Languages in Pakistan 1,100
Others Books 900
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Periodical Literatures
Literatures & Journals Numbers
Foreign Literatures 118Local Literatures 23
Journals & Literatures on different Researches 107Annual Reports different Central Banks 75Annual reports of Financial Institutions 10
Annual Reports of Local Organizations & Institutions 94Annual Reports of Companies 76
Annual Reports of Foreign Banks 45
The SBP Library is an active capital for Central Bank of Pakistan and also for
outsiders, means universities students, in-services & retired officials, lawyers,
honorable & senior citizens.
SBP’s Learning Resource Centre (LRC)
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The State Bank of Pakistan {SBP} 49
To realize the corporate social responsibility & show a meaningful role in the
development of the banking and financial sector, the management of SBP took the
initiative to establish state-of–art Learning Resource Centre (LRC). The major purpose
to build this LRC was the establishment of a house, inside the premises of the State
Bank of Pakistan. This learning school was inaugurated on 22nd November 2005 by
Dr. Ishrat Hussain; the thirteenth Governor of SBP with the sole purpose to supports
the teaching, learning and research.
Mission of LRC
The LRC strives to provide an appropriate range of good quality, well managed
services and resources, supported by a well trained, pro-active and responsive team
who actively encourage the involvement in the development of the service and who
work to ensure the Service is accessible, without prejudice and that the centre is an
effective place to meet and learn.
Environment in LRC
LRC is the knowledge hub of training and development activities at the SBP.
Basically, its offer training and technical assistance in the better environment of
world class conferences, seminars, meetings and training sessions in a very safe and
secured manner. Our facility offers well equipped and fully experienced computer
training. The audio & visual presentation system on the several events in learning
process is much more convenient, interactive and enjoyable for learning students.
Others Offers by LRC
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The State Bank of Pakistan {SBP} 50
The LRC don’t facilities only SBP’s officials and its subsidiaries but also various
institutions and organizations which are working for the capacity building of the
Banking and Financial Sector. Moreover, Business School, summer and winter
Internship programs arranged for university students also remain a very important
feature of the activities at the Centre throughout the year.
Place Facilities in LRC
3 Executive’s Conference Rooms
Boards Conference Room
Seminar Room
Internet Connectivity Cubical
Multi-Purpose Hall
Auditorium
The LRC is a complete school for any organization under the head of SBP. It
provides a lot of training experience to various organizational employees in very
efficient & effective manners.
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Financial Derivatives Business Regulations
(FDBR)
Introduction
The Financial Derivatives Business Regulations is a type of contract b/w SBP
and any financial institute to deal in the business of derivatives. The FDBR have been
formulated by SBP under Banking Companies Ordinance 1962 and Foreign Exchange
Regulations Act 1947, to permit, regulate, and supervise the financial institutions to
enter into derivative transactions.
The SBP is the supervisory authority for all banks and financial institutions
which are engaging in Derivative Business. To deals in derivative business financial
institute is legally bound to get the approval of the State Bank of Pakistan. All the
derivatives business users are bound under the supervision and scrutiny of SBP.
Explanation
The word “Derivative” refers the Regulation which means a type of financial
contract, the value of which is determined by reference of one or more underlying
assets.
The derivative business refers those regulations which are under these
classified categories as:
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The State Bank of Pakistan {SBP} 52
The Derivative Transactions occurs for the purpose of hedging the risks
which arises from its own assets or liabilities or for altering the risks profile.
The Derivatives Transactions should be executed by Financial Institution
with its customer. In this case, the Financial Institution does not face any
market risk on its own books and covers the transaction the same day on a
back-to-back basis. These institutions are regarded as “Non-Market Maker
Financial Institutions” (NMI).
Any Financial Institution may provides derivative trading services to
their customers and other financial institutions and quote prices to other
institutions and customers and can take market risk on its own books. These
institution are refers as “Authorized Derivatives Dealer” (ADD). Its not
necessary for these institution to cover its position on a back to back basis,
however, it has to remain within its allowed limits when prescribed by State
Bank of Pakistan.
Rights of Financial Institutions
The Financial Institution is bound to establish a Risk Management System,
Internal Control System, and Processing System to deal with the nature, scale, and
complexity of derivative business in the legal supervision of SBP. The senior
management of this financial institute has ability to review and approve the policies,
procedures, organization and delegated authorities of the business operation system
and risk management system in business derivatives with their own responsibilities.
Under this contract the financial institution which are dealing in the activities
of derivatives business are able to formulate the clear standards on the qualifications
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The State Bank of Pakistan {SBP} 53
of dealers, analysts and other staff. It is able to setup a sound operational risk control
mechanism and system to strictly control any operational risk.
Powers of SBP as Supervisor
All the regulations about financial institutes are may be interpreted by the
State Bank of Pakistan. The SBP may suspend or withdraw the status of any Financial
Institution as an NMI or an ADD to carry out the Derivative Business if it has found
that the financial institute is involve in the violation of the rules & regulations. The
SBP may examine all the statements of the financial institution which are related to
derivative business at any time, and periodically.
The senior management of a financial institution is bound to adopt the
standards and methods for measuring the risks of its derivative business which are
appropriate for such institution, and allocated by SBP.
Financial Institutes in Pak-Economy
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The list of Banks and Financial Developments Institutions in Pakistan which are
working in Pakistan as secluded banks of SBP as,
Public Sector Commercial Banks
a) First Women Bank Ltd.
b) National Bank of Pakistan
c) The Bank of Khyber
d) The Bank of Punjab
Specialized Scheduled Banks
a) The Punjab Provincial Co-operative Bank
b) SME Bank Limited
c) Zarai Taraqiati Bank Limited
Private Local Banks
a) Allied Bank Limited
b) Askari Bank Limited
c) Bank Al-Falah Limited
d) Bank Al-Habib Limited
e) My Bank Limited
f) Creascent Commercial Bank Limited
g) NIB Bank Limited
h) Faysal Bank Limited
i) Habib Bank Limited
j) KASB Bank Limited
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The State Bank of Pakistan {SBP} 55
k) MCB Bank Limited
l) Meezan Bank Limited
m) Atlas Bank Limited
n) Saudi Pak Commercial Bank Limited
o) Soneri Bank Limited
p) United Bank Limited
q) Arif Habib Bank Limited
r) Dubai Islamic Bank Pakistan Limited
s) Bank Islami Pakistan Limited
t) Royal Bank of Scotland
u) Habib Metropolitan Bank Limited
v) JS Bank Limited
w) Standard Chartered Bank (Pakistan) Limited
x) Emirates Global Islamic Bank
y) Dawood Islamic Bank Limited
Foreign Banks
a) Al-Baraka Islamic Bank B.S.C. (E.C.)
b) Citibank N.A.
c) Deutshe Bank A.G.
d) The Hong Kong & Shanghai Banking Corporation Limited
e) Oman International Bank S.A.O.G.
f) The Bank of Tokyo – Mitsubishi UJF Limited
Development Financial Institutions
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The State Bank of Pakistan {SBP} 56
a) Industrial Development Bank of Pakistan
b) Pak Kuwait Investment Company of Pakistan (Pvt) Limited
c) Pak Labya Holding Company (Pvt) Limited
d) Pak Oman Investment Company (Pvt) Limited
e) Saudi Pak Industrial & Agricultural Investment Company (Pvt) Limited
f) Pak – Brunai Investment Company Ltd.
g) Pak – China Investment Co. Ltd.
h) Pak – Iran Joint Investment Co. Ltd.
Micro Finance Banks
a) Khushhali Bank
b) Network Micro Finance Bank Limited
c) The First Micro Finance Bank Limited
d) Rozgar Micro Finance Bank Limited
e) Tameer Micro Finance Bank Limited
f) Pak Oman Micro Finance Bank Limited
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Reformed Islamic Banking by SBP
The recent re-launch of Islamic Banking in Pakistan by SBP has been based not
only on the lessons learnt from the history of Islamic Banking efforts in Pakistan but
also on the experiences of other countries in the world that are currently known for
their lead role in Islamic finance sector e.g. Malaysia and Bahrain.
By this new approach, the SBP is focused on providing the users of Islamic
banking with the solutions they seek for managing their financial relationships with
others. These solutions will be as functional and cost effective according to the
Shariah compliant. The essential of Islamic Banking is based upon on the sound
regulatory framework with flexible nature, market driven and the international
practices.
A sound Shariah compliance mechanism which is comprehensive, flexible,
multi layered and acceptable locally and internationally in nature is also most
important for the success of Islamic Banking in Pakistan.
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About Islamic Banking
“And Allah has permitted trading, and prohibited Riba.”
(The Holy Quran)
“The comforting and encouraging fact is that Islamic World has
collectively launched Islamic Finance with a greater degree of commitment with
the adequate capital. Now, the institutional frameworks which are
internationally recognized according to the regulatory and accounting
frameworks for Islamic finance industry are also available. I hope that the
effective implementation of the Islamic strategy will be helpful in achieving the
optimum yield of Islamic Finance.”
(Dr. Shamshad Akhtar, Governor)
"The very important objective of the Shariah is to promote the welfare of
the people, which lies in safeguarding their faith, their life, their intellect, their
posterity and their wealth. Whatever ensures the safeguarding of these five
serves public interest and is desirable."
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The State Bank of Pakistan {SBP} 59
(Al-Ghazali)
"The basis of the Shariah is wisdom and welfare of the people in this
world as well as the Hereafter. This welfare lies in complete justice, mercy, well-
being and wisdom. Anything that departs from justice to oppression, from
mercy to harshness, from welfare to misery and from wisdom to folly, has
nothing to do with the Shariah."
(Ibn-al-Qayyim)
Vision
The vision of SBP is to develop the Islamic Banking as the banking of first
choice in Pakistan, which capable of being providing the leadership to the global
Islamic finance industry and facilitating equitable economic growth.
Mission
The SBP is working on the mission to promote and develop the Islamic banking
industry in line with best international practices, ensuring the Shariah compliance &
transparency in the world.
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The State Bank of Pakistan {SBP} 60
Objectives
We want to achieve following objectives till 2012 as,
To achieve a market share of 12% only
To expand and extend the outreach of Islamic banking products in existing
Consumer and Corporate sectors as well as introduce it in the Micro Finance,
Agriculture and SME and all other sectors.
To provide the strength to Shariah Compliance framework
To strengthen the regulatory framework in the line with global best practices
To establish a specialized institution to develop Human Resource for the
industry
To integrate all the elements of Islamic Financial Services Industry
Be a part of the international Islamic banking community, appropriately
positioned to attract foreign direct investment
Pillars of Islamic Banking
To achieve the objectives and to capitalize the strengths in Islamic Banking, the
SBP has work on these five pillars of promotion as,
To extension of outreach - both breadth and depth.
To strong the Shariah compliance mechanism
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To robust the regulatory framework which is able to accommodate the unique
aspects of Islamic banking transactions
To provide the capacity building through human resource development
Strategy for Islamic Banking
To achieve the objectives, the SBP
make a strategy. According to this
strategy, the Pakistan has several
comparative advantages in the Islamic
Banking space because we have a large
population of 160 million people with
97% population being Muslim. This
provides a huge domestic market base,
second only to Indonesia.
In fact our Banking Companies Ordinance, 1962 (BCO) has been amended to
suit the Islamic Banking principles and concepts which can explain the fairly well
developed regulatory and legal framework to underpin our current developments.
The SBP’s strategy based upon on these accounts as,
To formulate the offerings which are comparable and compatible with
conventional banking but are in line with Shariah
To build the existing regulatory framework to accommodate the Islamic
banking transactions by retaining the elements that are common to both
systems and adding on those elements that are not currently available to
accommodate the unique differences of Islamic banking.
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To strengthen the Shariah compliance mechanism and position it as
being acceptable globally thus helping Pakistan’s Islamic banking to integrate
well with the global Islamic banking industry.
To co-ordinate with other regulators/agencies to lay down the
foundation for a consolidated regulatory framework across all sectors of
Islamic Financial Services Industry
Current Status
As compared to our past experience our new approach provides flexibility to
the Islamic Banking Institutes (IBI’s). At the end of 2003, there was only one bank
operated as a full-fledged Islamic bank and three conventional banks were operating
Islamic banking branches.
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Today there are 6 full fledge licensed Islamic banks (IBIs) and 12 conventional
banks have licenses to operate dedicated Islamic banking branches (IBBs). All of the
five big banks of Pakistan are providing Islamic banking services in their branches.
The total assets of the Islamic banking industry are over Rs. 225 billion.
The total branch network of this industry comprises of more than 330
branches with presence in over 50 cities & towns covering all the four provinces of
the country and AJK.
Stock 2003 2004 2005 2006 2007
Deposits 8379 30185 49932 83740 147361
Borrowings 1899 6559 9006 10843 15042
Capital 1994 5123 7811 16348 29526
Liabilities 625 2276 4745 8363 14017
Investments 1242 2007 1854 7328 30961
Cash & Bank
Balance1979 11900 19314 31358 38996
(Rs in Millions)
The SBP want to achieve the establishment of Islamic banking in the country as
a parallel banking system which is comparable and compatible with the conventional
banking system while being Shariah compliant.
Now the SBP is in continue working to built regulatory framework of different
standards of accounts in Islamic terms with the help of international bodies like IFSB,
AAOIFI and IIFM.
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Banking Reforms in Pakistan
Introduction
We know that, a growing and dynamic banking sector is essential for economic
growth in Pakistan, as growth in the banking sector and the real economy are
mutually interlinked with each other. The banking sector constitutes the core of the
financial sector in Pakistan.
Pakistan’s banking industry and the broader financial sector has enormous
potential to support faster economic growth and development but in comparison
with other emerging market countries (EMCs), we have small growth in this sector.
In recent years, a wide range of important structural reforms already have
taken place but more reforms are needed for the banking sector to grow into its full
potential for supporting the strong and sustained economic growth and
development. These reforms are take place under the head of “The Banking Sector
Strategy” (BSS). The BSS focuses on reforms that the SBP has the power and
resources to implement or substantially influence in the economy.
The BSS has been developed by the SBP, which has full ownership of the
reform agenda. In developing the BSS, the SBP focus the international experience
through the technical assistance of Asian Development Bank (ADB), the International
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Monetary Fund (IMF) and the Department for International Development (DFID) of
the United Kingdom.
Current Situation
The Pakistan’s financial system has
grown in recent years but continues to
have an enormous growth potential. Now
the banking sector has gained dynamism,
profitability, respectability and strength.
The deposit base rose to Rs. 4.1 trillion and
gross advances to Rs. 3.3 trillion. By the
support of growing financial
intermediation process, banks’ aggregate profitability raised Rs. 46 billion.
Vision and Objectives for BSS Reforms
We know that the financial sector growth and real economic growth are
directed to each other. The ratio of total financial assets to GDP is generally used as a
measure of financial sector, the higher ratio considered as the more support to
financial sector and vice versa. All of us are agreed that the substantial financial
growth is feasible only when the macroeconomic policies and financial incentives are
present in appropriate political, institutional, business and administrative conditions.
The specific targets by these reforms include increases in banking sector
financial assets and credit to the private sector. This credit expansion would be
mainly facilitated by growth in banking sector deposits, but also by development of
the private debt market.
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Banking Sector Reforming Strategy
The SBP is now launching a 10 year Banking Sector Reform Strategy (BSS)
which has been depend upon on the following parameters as,
A comprehensive assessment and evaluation of the banking sector and the
broader financial system that has helped to handle the key issues and
limitations in the Pakistan Economy
To arrange the lectures, lessons & training workshop under the various abroad
economists, and get the experience from other countries as well as the
emerging regional and global financial architecture
Like other developing countries, the BSS has a vision to received technical
assistance from the ADB, UK DFID and the IMF
To changes in legislation regarding these reforms have been already in drafted
form, and legal amendments and new legislation will require the necessary
time for Cabinet review and endorsement
To regulate & supervised the banking sector by strengthening the SBP
independence and its powers to maintain monetary and financial stability;
with the help of updating legislation and regulations
To make the banking sector more responsive & reliable to fulfill the needs of
the economy in the way of rapid and sustainable economic growth,
innovation, competition, new product delivery channels, effective mobilization
of reserves and to enhance the private sector are included in this reform
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To provide more infrastructures for financial intermediation in banking sector,
and also to the others sectors to increase their efficiency and reduced
uncertainty
The political stability and efficient policy-making environment are the key
elements for the macroeconomic growth; the fiscal policy and public debt
management are also supportive in expansion of financial sector
Equal Opportunities in SBPState Bank focuses on EEO a lot. Whenever new job opportunities arrive the
quota system is maintained for each and every province of Pakistan. The sub quota
consists of different demographic factors like:
Age
Gender
Different technological backgrounds
But there comes some reverse discrimination when there are some more
highly potential workforce is there but quota is completed. As far as age is concern, it
focuses on the experience of the workforce. State Bank has a mix of workforce with
diversified Ages and experience levels. In genders, females also have the quota but
due to the less female workforce in the market the quota level is very low for
females.
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But now, in recent years the quota for females has been increased to almost
double. State Bank is a growing organization and requires employees qualified in
different specialized skills like:
Information Technology
Administration
Economics
Management
Finance
Sociology
And a lot more...
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An Overall View on Pak-Economy
The economy of Pakistan is the 27th largest economy in the world in terms of
purchasing power. Pakistan has a semi-industrialized economy, which mainly
encompasses the textiles, chemicals, food
processing, agriculture and other
industries. The economy has suffered in
outgrowing parameters due to internal
political disputes. The currency in
Pakistan is Rupee {Rs. PKR} and 1 Rupee =
100 Paisa’s. The GDP growth ratio is 2.0%
(est.) with the 23% population which is
living below the poverty line. The labor
force of this up-growing economy is 49.18 Million with the unemployment rate of
7.5%.
The Public Debt of Pakistan is $ 45 Billion (Rs. 3802.5 Billions) and the revenues
of Pakistan Government are $ 27.5 Billions (Rs. 2323.75 Billions). The Governmental
Expenses are $ 35 Billions (Rs. 2957.50 Billions).
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Economic History
The Pakistan was a very poor and predominantly agricultural country when it
gained independence in 1947 from Britain. The average annual GDP growth rates
were 6.8% in the 1960s, 4.8% in the
1970s, and 6.5% in the 1980s. Then
this average annual growth fell to
4.6% in the 1990s and now we have
only 2.0%, really shameful.
In the regime of General Ayub
Khan (1960s), Pakistan was seen as
a model of economic development around the world. Especially, the Karachi was
seen as an economic role model around the world, and there was much praise for
the way its economy was progressing.
Later, the economic mismanagement and fiscally imprudent economic policies
caused a large increase in the country's public debt and led towards the slower
growth in the 1990s. The two wars with India adversely affected economic growth.
The great recession in the economic output occurs when the nationalizations
legislations were passed in mid-1970s. This recession were recovered during the
1980s via a policy of deregulation, as well as an increased inflow of foreign aid and
remittances from expatriate workers.
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FY Year GDP (Rs. Millions) US $ Exchange Rate
1960 20,058 4.76 Pakistani Rupees
1965 31,740 4.76 Pakistani Rupees
1970 51,355 4.76 Pakistani Rupees
1975 131,330 9.91 Pakistani Rupees
1985 569,11416.28 Pakistani
Rupees
1990 1,029,09321.41 Pakistani
Rupees
1995 2,268,46130.62 Pakistani
Rupees
2000 3,826,11151.64 Pakistani
Rupees
2005 6,581,103 59.86 Pakistani
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Rupees
2009 3825315084.50 Pakistani
Rupees
The GDP growth was in the 6-8% range in 2004-06 due to economic reforms in
the year 2000 by the General Musharaf’s Government. In 2005, the World Bank
named Pakistan the top reformer in its region and in the top 10 reformers globally.
But fiscal deficit was also curse in the result of ineffective low tax collection and
increased spending; including the reconstruction costs from the devastating Kashmir
earthquake in 2005 was manageable.
Overall Current Situation
The Pakistan’s Government has made substantial economic reforms since
2000, and medium-term prospects for the job creation and poverty reduction are the
best in nearly a decade. The government revenues have greatly improved in recent
years, as a result of economic growth, tax reforms, self-assessment scheme and
corruption controls.
The liberalization process in the international textile trade has already yielded
the benefits for Pakistan's exports, and the country also expects to generate profit
from free trade in agriculture sector. The growing stability in the nation's monetary
policies has contributed to reduce the money market by which the interest rates as
well as great expansion are in control. In 2005, the World Bank reported that…!
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"Pakistan was the top reformer in the region and the number 10 reformer
globally — making it easier to start a business, reducing the cost to register
property, increasing penalties for violating corporate governance rules, and
replacing a requirement to license every shipment with two-year duration
licenses for traders."
Stock Market of Pakistan
In the first four years of the 21st century, the Pakistan's KSE 100 Index was the
best-performing stock market index in the world as declared by the international
magazine “Business Week”. The stock market capitalization of listed companies in
Pakistan was valued at $ 5,937 million (Rs. 356220 Millions) in 2005 by the World
Bank. But in 2008, after the General Elections, uncertain political environment, rising
militancy along western borders of the country, and mounting the inflation and
current account deficits resulted in the steep decline of the KSE 100 Index. As a
result, the corporate sector of Pakistan has declined dramatically in significance in
recent times.
Manufacturing and Finance in Pakistan
The Pakistan's manufacturing sector has experienced double-digit growth in
recent years, from 2000 to 2007, with large-scale manufacturing growing from a
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The State Bank of Pakistan {SBP} 74
minimal 1.5% in 1999 to a record 19.9% in 2004-05. The Federal Bureau of Statistics
valued the finance and insurance sector at Rs. 311,741 millions in 2005.
Foreign Exchange Reserves of Pakistan
At the end of Prime Minister
Shaukat Aziz’s tenure (Oct 2007), the
Pakistan Foreign Reserves were rose
up to $ 16.4 Billions as record. But
after Oct 2008, the SBP reported that
country's foreign exchange reserves
had gone down by $ 571.9 Millions to
$ 7749.7 Millions. Now the foreign
exchange reserves had declined more
by $ 10 Billions to an alarming rate of
$ 6.59 Billions.
The Pakistani Nation have hop on Allah Almighty who gives us their blessings
and help us to become a unbearable economy of the world. (Amen)
Interest Structure by SBP
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We know that interest is the major phenomena in any economy. The rate of
interest directly show the condition of economy because if the rate of interest is high
then the market face the depression or recession period in the economic activities or
if the rate of interest is low then the market abolish the boom or recovery period. In
the economy of Pakistan interest structure by SBP is not satisfactory in terms of
economics. Anyway, the brief analysis about interest (discount rate) structure in
Pakistan as that,
Term Rate (%age)
Oct 05, 2000 13.00
June 07, 2001 14.00
July 19, 2001 13.00
Aug 17, 2001 12.00
Oct 22, 2001 10.00
Jan 23, 2002 9.00
Nov 18, 2002 7.50
April 11, 2005 9.00
July 22, 2006 9.50
Aug 01, 2007 10.00
Feb 02, 2008 10.50
May 23, 2008 12.00
July 30, 2008 13.00
Nov 13, 2008 15.00
April 21, 2009 14.00
Aug 17, 2009 13.00
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Nov 25, 2009 12.50
By this analysis we get conclusion that SBP is not in good direction for the
betterment of Economy. We commonly observes that 12.5% is a huge discount rate
for developing economy, but now government wants to fall the rate of interest in the
economy to boost up the economic activities in the country.
Tax Collection by SBP
The tax collection by the SBP is appreciating step because SBP is only one
monetary organization in the Pakistan who take over all the monetary issues in very
efficient manners.
The Federal Board of Revenue
(FBR) is the tax authority in Pakistan,
who has ability to imposed tax on each
& every citizens in terms of law. From
all over the Pakistan, SBP collects the
taxation amount and provide to
government & others institutions for
their expenditures.
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So, the taxation collection task is good in the hands of SBP. The tax collection
in previous terms is as below,
Period Direct Tax Sales Tax Excise TaxCustom
Duty
Total
Revenue
(FY) (M Rupees) (M Rupees) (M Rupees) (M Rupees) (M Rupees)
2000-01 124585 153656 49080 65047 392277
2001-02 142505 166561 47186 47818 404070
2002-03 151898 195139 44754 68836 460627
2003-04 165079 219167 45552 91045 520843
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2004-05 183372 238537 53104 115374 590387
2005-06 224988 294798 55272 138384 713442
2006-07 333737 309396 71804 132299 847236
2007-08 387487 376930 92185 150579 1007181
2008-09
(est.)440271 452294 116055 148382 1157002
Real GDP Rate of Pakistan
We know that Real Gross Domestic Product Rate is the growth rate of the
country which explains the total production & consumption in the economy in very
short value. The GDP of Pakistan-Economy is good but satisfactory according to the
international levels, we considered as the consumption economy not a productive
economy.
GDP
Growth
2003
-
2004
2004
-
2005
2005
-
2006
2006
-
2007
2007
-
2008
2008
-
2009
Agriculture 964853 1027403 1092098 1137037 1149270 1203308
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Industry 1076808 1207268 1256827 1367532 1390810 1341031
Services 2173947 2358559 2511551 2687140 2864406 2968106
Total GDP 4215608 4593230 4860476 5191709 5404486 5512445
The Total GDP includes the all sectors of the economy. (M Rs)
Total Deposits & Advances in Pakistan
Year Deposits Advances
2002 1532168 1000331
2003 1793176 1169986
2004 2161098 1589870
2005 2661697 2043982
2006 2999895 2409478
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2007 3565537 2651173
2008 3801411 3141028
2009 4161958 (Aug) 3154737 (Aug)
(Rs. In Millions)
Inflation – The Curse
Year Food ItemsNon-Food
Items
Overall Core
Inflation
2000 0.6 2.9 -
2001 3.0 9.1 -
2002 0.9 1.5 -
2003 3.5 7.1 -
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2004 7.0 8.6 3.9
2005 10.7 4.0 8.8
2006 7.0 12.4 7.0
2007 8.9 5.6 6.9
2008 19.0 14.6 10.2
2009 23.2 14.4 19.2
Economy is Still Fragile…!
Karachi, Pakistan.
November 24, 2009.
The Governor, SBP Syed Salim Raza said,
“Although the inflation and current account deficit have come down and the
economy continues to be fragile. The tight monetary stance has helped bring down
inflation from the peak of 25.3% (Aug 08) to 13.1% (June 09) and the current deficit
account shrunk as percentage of GDP last fiscal year.
These positive developments need to be viewed with caution, however, given
that the economy continues to be
fragile, and an assessment of the
balance of risks continues to present a
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mixed picture. Because according to the stabilization measures, the fiscal deficit was
substantially contained at 5.2% of GDP in FY 2008-09 down from 7.4% in previous
years on back of elimination of subsidies as well as a cut in development
expenditure.
The step to transfer the responsibility to decide the cut-off yields of T-bills and
PIBs was shifted to the Ministry of Finance was taken to communicate that changes
in the cut-off rate are not reflective of the monetary policy stance, while allowing
SBP to focus on liquidity management consistent with the requirements of monetary
policy implementation.
In response to the changing the economic and business cycle, the central bank
also stepped in to facilitate the banking sector by rationalizing the minimum capital
requirements to Rs. 10 billions, to be implemented in a phased manner by December
2010, and allowing the use of 30% of the Forced-Sale Value of collateral”.
We know that in November 2008, the SBP also announced interim monetary
policy measures which cause the uncertain and rapidly changes in the
macroeconomic environment. Due to this growth, the SBP decided to increase the
frequency of its monetary policy statements in January 2009. To further enhance the
transparency and credibility of the monetary policy formulation process, the SBP
constituted an independent Monetary Policy Committee (MPC) consisting of both
internal and external members.
In January 2009, the responsibility of deciding the cut-off yields in the primary
auctions of Treasury Bills (T-bills) and Pakistan Investment Bonds (PIBs) was shifted
to the Ministry of Finance, while SBP’s role was to manage the operational aspect of
the auctions.
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Electronic Bond Trading System
Mr. Syed Salim Raza, Governor
SBP has said that the central bank
intends to introduce an electronic
bond trading platform early next
year. This will provide investors real‐
time information about market yields
resulting in enhanced liquidity and
the better price discovery in the
fixed income market. ‐
By delivering a keynote address on “Developing the Next Generation Capital &
Commodity Markets Ecosystem in Pakistan” at the “South Asian Federation of
Exchanges (SAFE) Country Roundtable” held in Karachi.
Mr. Raza said that in the initial stage only sovereign paper will be traded on
the platform resulting in a liquid sovereign yield curve that would provide better
representative of benchmarks for issuance of the corporate debt instruments. This
platform will also help in shifting government debt from banks to other institutional
investors thus freeing up funds for private sector credit hence facilitating the
development of real economy.
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The State Bank during the last decade has been at the forefront of broadening
not only the investment instruments and risk management tools but also supporting
the broadening of the participants that have a need to use these to address their
investment mandates.
He further said the he believes that there is a room to accommodate more
investor groups in the local currency Government Debt program and one such group
might consist of investors currently accessing the National Savings Scheme (NSS).
Mr. Raza said that SBP feels that financial institutions have a significant role to
play to by taking on the role of financial advisors to the public in general. This would
include selecting the appropriate mix of asset classes, setting the liquidity/maturity
targets, tax planning services and provide their services of financial intermediation to
enable them to invest and rebalance their retirement/investment portfolios
periodically.
Mr. Raza stressed that the State Bank has played a role in supporting the price
risk management activities by allowing the banks to provide financial intermediation
in the currency & commodities hedging, interest rate risk management, etc. and
would continue to do so as institutional activity evolves.
Mr. Raza said the key advantage of having institutions like National
Commodities Exchange would be to provide price discovery and marking to market
taking place in local time zone rather than having to hedge price risk in European,
Asian or American time zone. “It is expected that technological innovation would be
at the forefront of such development, introducing transparent electronic trading and
mechanism to minimize the resultant settlement and price risk.
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Current Situation of SBP
According to Dawn News, the SBP has consolidated accounts of FY 2009-10
with profit of Rs. 204.2 Billions from the last FY 2008-09 with the profit value of Rs.
164.8 Billions. The net discount and interest earnings are only 61% of the total profit
in FY 09 year. In FY09, the share of interest earnings in total profits raised to 85.6%
which showing huge increase in profitability. This huge profit has been appears only
due to the high interest rates the SBP charged without any enhanced operational
efficiency in the economy.
The other major source of income
for SBP in this huge gain is depending
upon the daily exchange transactions.
Because the total foreign currency
reserves of the SBP rose from Rs 636.3
Billions in FY 08 to Rs 808.2 Billions in
FY 09. Thus the rate of return on the
SBP’s foreign reserves fell from 9.8%
in FY 08 to 3.9% in FY 09. A major
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The State Bank of Pakistan {SBP} 86
cause of such a decline was the dramatic rise in the share of currency accounts in the
SBP reserves portfolio.
The investments reserves fell from Rs. 241.9 Billions in FY 08 to Rs. 138.8
Billions in FY 09. These investments held to maturity with relatively high expected
return which has been totally eliminated falling from Rs. 1.7 Billions in FY 08 to zero
in FY 09. The switch from investment to currency accounts during FY 09 is quite
inexplicable. It is clear that the SBP’s capability of management of foreign currency
reserves is meager.
During FY 07-09, there are 63 Involuntary Separations have been instituted in
the economy. In addition, there have been about 200 Voluntary Separations. The
promotions have been fallen from 119 in FY 08 to just 55 in FY 09.
The analysis of the SBP’s Profit and Loss Statement (P & L a/c) for FY 2009 does
not reveal any evidence of SBP efficiency. The SBP is right to point out that a large
proportion of the decline in foreign exchange earnings is due to payments to the
IMF. IMF financing is undoubtedly becoming exploitative but the SBP also made a
large loss on open market operations and placements earnings declined significantly.
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The Fragile Monetary Policy by SBP
According to Dawn News, the IMF has
mandated that legislation must be
introduced during fiscal 2010 to strengthen
the SBP’s enforcement powers in banking
supervision under the Standby Agreement
2009-14. By the IMF schedule, the SBP has
responded by removing all cash margin
requirements on letters of credit.
Further, the institutions of “corridor for overnight money market rates” are
bound on 300 basic points to ensure that the prevalence of high interest rates in the
inter-bank market and creation of an “Independent Monetary Committee”. The SBP
has complied with all these demands.
We saw an actual practice; the SBP’s Monetary Policy Statement of October
2009 was a virtual photocopy of the relevant paragraphs of the IMF’s document.
Now the SBP is no longer free to establish its own monetary policy targets for Pak-
Economy.
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The IMF mandates that SBP’s primary monetary policy objective is to reduce
the inflation with strengthen the international reserve position and to avoid SBP
financing of the budget deficit. The SBP is also ordered not to lower its policy rate
during FY 2009-10. Any further reduction in the policy rate will await a significant and
sustained decline in core inflation.
The SBP is also instructed to pursue a flexible exchange rate policy in the
foreign exchange market mainly to achieve the targets. The SBP has also agreed to
adopt “IMF’s Problem Bank Management and Contingency Plan” and the Fund is
planning to undertake a comprehensive safeguards assessment of the SBP, especially
its internal control and risk management systems soon.
The government expenditure is to be expected at 19% of GDP and
development expenditure at 22% of the total public expenditure during the 2009 to
2014 period. The health and public education sector will continue to be grossly
neglected.
The pitiable situation is that the SBP’s fix inflation deceleration at specific rate.
Its means that the inflation for highest the income group is not sufficient but the
pitiable for monthly income level of Rs. 5,000 or less.
According to recent research by IMF the interest rate impulse shocks have
virtually no impact on output and price changes in Pakistan. This empirical work has
shown that the savings have very low interest elasticity and investment response to
interest rate changes is unpredictable.
So we conclude that the monetary policy initiatives by IMF have failed in every
respect. They have been ineffective in reducing inflation and have restricted
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The State Bank of Pakistan {SBP} 89
employment and productivity growth in the economy. The acceptance of IMF over-
lordship by the SBP has been a total and unmitigated disaster.
ConclusionFrom all our discussion we commonly concluded that
the State Bank of Pakistan is not an independent
organization under the hidden supervision of Federal
Government & others international monetary organizations.
Our contracts from these international organizations are the
hurdles for the independent and well-effected monetary
policy. We should get the advice of SBP and other important
institutions of the Pakistan Economy to enter into any
contract. Our great country has all the resources but not
efficient management and effective plans for the long-term
strategies.
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Bibliography
By the Internet means,
Microsoft Encarta Encyclopedia 2005
Google Search Engine
Wikipedia Search Engine
The official Web of SBP {www.sbp.gov.pk}
Latest Economic Survey of Pakistan
Dawn News Network
The official Web of Reserve Bank of India {www.rbi.gov.in}
The official Web of IMF
By the Books Material,
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The State Bank of Pakistan {SBP} 91
“Issues in Pakistan’s Economy” by S. Akbar Zaidi
“Money Banking & Finance” by M. Saeed Nasir
“Money, Banking and Financial Markets” by Stephen G. Cecchetti
“The Business of Banking” by Geoffrey Lipscombe & Keith Pond
“Money & Banking” by Dudley G. Luckett
‘Bank Management & Financial Services” by Peter S. Rose& Sylvia C. Hudgins
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