Pakistan's Forex Reserves Ease to $17.90 Billion
Monday, September 5, 2011
Pakistan's foreign exchange reserves fell to $17.90 billion in the week ending Aug. 27, from $17.96 billion in the previous week. Reserves held by the State Bank of Pakistan (SBP) fell to $14.45 billion from $14.50 billion in the earlier week, while those held by commercial banks eased to $3.45 billion from $3.46 billion, according to the State Bank of Pakistan. Foreign exchange reserves hit a record $18.31 billion in the week ending July 30 but have eased since then due to scheduled debt repayments.
The reserves were boosted in June by inflows of $411 million, including a loan of $191.9 million from the World Bank, and another loan of $196.8 million from the Asian Development Bank. Higher export proceeds and a record inflow of remittances have helped Pakistan's forex reserves grow steadily. According to official data, remittances rose 38.57 percent to $1.1 billion in the first month of 2011/12 fiscal year (July-June), compared with $791.18 million in the same period last year.
Labels: Money Market, Pakistan Economy, SBP
posted @ 3:38 PM,
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Forward Cover Facility Against Imports
Thursday, March 24, 2011
Attention of Authorized Dealers is invited to Para 1 of F.E. Circular No. 8 dated July 08, 2008 in terms of which forwarded booking against all types of imports was temporarily suspended.
In order to meet the genuine business needs of importers, it has been decided to restore the said facility with immediate effect subject to compliance of all related instructions contained in Chapter IV, FEM-2002 and the following terms and conditions:
1. Forward cover facility will be made available to importers against the Letter of Credit only.
2. No forward cover facility will be provided for a period of less than one month. Roll over in those cases where import payment is not made in accordance with the schedule, will be allowed subject to the condition that the roll over is not less than one month
3. In terms of instructions contained in chapter IV of F.E. Manual 2002, banks will ensure abinitio that the facility is being availed for genuine import transaction and that the importers do not hedge more than the underlying exposure.
Furthermore, if during SBP’s inspection or at any point of time, it is found that the said facility was misused for and not against genuine transactions, action will be taken by SBP under Foreign Exchange Regulation Act, 1947, against the concerned bank and the importer.
4. As per the existing regulations, all forward contracts against which the L/Cs are cancelled are required to be closed out on maturity and differential is settled between the importer and the bank. However, all such cases, where underlying L/Cs were cancelled will be submitted to SBP on maturity with full details, reasons and justification, for further action by SBP as deemed appropriate in terms of regulations under the FERA Act 1947.
Authorized Dealers are advised to bring the above to the notice of their constituents, for strict compliance.
Labels: SBP
posted @ 10:29 AM,
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Punjab Government Mulling Privatising BoP
Friday, February 25, 2011
The Punjab government is contemplating to privatise the Bank of Punjab (BoP) with the aim that proceeds of the privatisation of bank will help bailout the provincial government from current financial crunch and Mian Muhammad Mansha, a prominent banker is the potential buyer, Business Recorder has learnt.
Sources told this scribe that Punjab government officials and BoP senior management has given a detailed briefing to the PML-N Quaid Nawaz Sharif and Mian Mohammad Mansha owner of Muslim Commercial Bank (MCB) limited regarding the equity, assets, manpower and infrastructure of BoP.
It may be added that during first tenure of Nawaz Sharif as Prime Minister (1991-93) Mian Mansha purchased the state owned Muslim Commercial Bank (MCB) which is now one of the leading banks of Pakistan with a deposit base of Rs 368 billion and total assets over Rs 500 billion.
It may be added that Punjab government has been living on over-drafts of nearly billions of rupees from the State Bank. In order to improve its financial position it has already identified and put 1410 properties including commercial, residential and agriculture lands for sale to fetch more than Rs 12.5 billion from market since November 2009.
Till the end of January 2011, out of total properties on sale, the Punjab Privatisation Board sold out 325 properties of all kinds in open auctions and earned Rs 3.29 billion to meet its expenses said an official. In January this year, the government also announced rightsizing in public sector to save Rs 6.1 billion from current expenditures, he added.
It is pertinent to mention here that Punjab government established BoP in 1989, in pursuance of The Bank of Punjab Act 1989 and was given the status of scheduled bank in 1994. The Bank of Punjab is working as a scheduled commercial bank with its network of 284 branches at all major business centres in the country. The Bank provides all types of banking services such as Deposit in Local Currency, Client Deposit in Foreign Currency, Remittances, and advances to Business, Trade, Industry and Agriculture. A wholly owned subsidiary of BOP, First Punjab Modaraba, was established in 1992 and is being managed by Punjab Modaraba Services (Pvt) Ltd.
The Punjab government has owned 51 percent shares of the bank whereas 49 percent shares were owned by various individual, companies and foreigners. According to official record, the deposits of BoP is calculated Rs 225 billion till December 2010. Whereas, its assets were calculated Rs 173.6 billion according to Annual General Meeting 2008. The manpower is above 6,000 employees.
The bank remained under tremendous financial pressure during 2009 and 2010 owing to bad loaning particularly to Haris Steel Mill by the former president Hamesh Khan. The Punjab government provided Rs 10 billion finances to bank as equity injection to come out from the crises. Now BoP is doing business at breakeven level (no profit no loss basis), said an official requesting anonymity.
A senior finance department official said banking was a corporate activity and should be done by the private sector. If the government was interested to privatise BoP, fair market value should be carried out first to assess the total outlay (equity+loan+assets) of the bank to attract most appropriate price from the market. Privatisation should be done in open auction. It was in the interest of the government to privatise bank because it was passing through constant financial crises to deal government business and financial issues. The privatisation would help the government to avoid future loss and generate handsome funds to be diverted into development projects, he added.
Another senior Punjab government official requesting anonymity said discussions were being made at high level and political elite would decide about the privatisation of the bank. The privatisation would be done under "The Punjab Privatisation Board Act, 2010, he added.
The Punjab government can sell only 51 percent shares owned by her and the new management would purchase the remaining shares in hostile take-over from stock markets. If 51 percent shares would be sold then the purchaser would take-over the management control of the bank, he added. When contacted, Tariq Bajawa secretary finance Punjab said "it is not in my knowledge."
When asked, Ameer Mumtaz media manager BoP said it was news for me that bank was going to be privatised. When contacted, Mubashir Bashir head of corporate communication MCB on the behalf of Mansha said "we have no such intentions yet," adding that it was routine that Mansha holds meetings on various issues.
He said Mansha purchased MCB during first tenure of Nawaz Sharif as Prime Minister (1991-93) Mian Mansha purchased the state owned Muslim Commercial Bank (MCB) which is now one of the leading banks of Pakistan with a deposit base of Rs 368 billion and total assets over Rs 500 billion. Incorporated in 1947, MCB soon earned the reputation of a solid and conservative financial institution managed by expatriate executives.
Labels: BOP, Commercial Banks, MCB, SBP
posted @ 5:29 PM,
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NBP FOREE CASH
Saturday, February 19, 2011
National Bank of Pakistan (NBP) has formally launched instant, reliable, convenient and absolutely free remittance product in Madina region of Kingdom of Saudi Arabia.
According to NBP here, the product with the brand name of "NBP FOREE CASH" was launched on 12th Rabi-ul-Awwal. This instant remittance product is available from all centers of Tahweel Al Rajhi to facilitate the large Pakistani community for sending instant remittances to their families at home.
It is a cash-to-cash remittance delivery product through which beneficiaries from across Pakistan can receive home remittances in minutes from their loved ones abroad.
Labels: Commercial Banks, NBP, SBP
posted @ 11:11 AM,
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Revision of Financing Rates under the Export Finance Scheme (EFS)
Monday, January 3, 2011
Please refer to SMEFD Circular No. 13 dated September 30, 2010 on the captioned subject.
It has been decided that rate of refinance under the Export Finance Scheme applicable from January 1, 2011 and onward till further instructions shall be 10.00% p.a. The commercial banks shall ensure that where financing facilities are extended by them to the exporters for availing refinance facilities under the Export Finance Scheme, their maximum margin / spread does not exceed 1% p.a.
The financing facilities under Part-B (Export Sales) of the Scheme for financing Locally Manufactured Machinery shall also attract similar mark up rate structure.
The reimbursement of mark-up rate benefit to exporters, on excess performance under Part-II of the Scheme, as specified in SMEFD Circular No.15 dated October 31, 2009, will be adjusted accordingly keeping in view the revised mark-up rates.
Labels: Export Finance Scheme, SBP
posted @ 11:15 AM,
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Derivative Deal Signed by HSBC and ESML
Monday, December 6, 2010
HSBC is one of the largest banking and financial services organisations in the world with an international network of around 8,000 offices in 87 countries and territories in Europe, Asia Pacific region, Americas, Middle East and Africa. In this regard, HSBC is well placed to offer highly innovative financial services to its customers, both locally and internationally.
HSBC Pakistan and Ellcott Spinning Mills Limited (ESML), a subsidiary of Nagina Group recently completed a Derivative Deal in Lahore. Commenting on the transaction, Umar S Khan, Head of Commercial and Global Banking at HSBC Pakistan said, "We are excited at this development. In addition to using HSBC's global strength to better serve its customers, it paves the way to offer more solutions to our customers."
The Head of Global Markets at HSBC Pakistan, Kamran A Khan said, "This is a very promising endeavour for HSBC Pakistan and ESML and will go a long way in deepening the strong corporate relationship that we enjoy." With a strong footprint in trade and supply chain services and a truly integrated international network, there are many such initiatives to come. HSBC is committed to investing in the local economy and maintains a consistent presence in Pakistan.
Labels: Banks, Derivatives, SBP
posted @ 1:31 PM,
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Salient Features of Monetary Policy Issued dated Nov 30th 2010
Tuesday, November 30, 2010
- State Bank of Pakistan (SBP) has decided to raise its policy rate by 50 basis points to 14 percent with effect from Tuesday (Nov 30).
- Decision was taken at a meeting of SBP's Central Board of Directors held in Lahore ; with SBP Governor Shahid H. Kardar in the chair.
- The rationale behind the increase in policy rate is SBP's efforts to counterbalance the rapid expansion in reserve money and arrest the rising inflation expectations.
- Inflation is rising and showing persistence because of relentless government borrowing from the SBP. The rising Net Domestic Assets (NDA) to Net Foreign Assets (NFA) ratio of SBP balance sheet and its strong association with CPI inflation also suggest that the inflation is likely to persist at double digit levels during much of FY11 and possibly in FY12.
- A principled decision has also been taken by the Central Board to strictly implement the revised limits on borrowings of the provinces from the SBP, even if it involves stopping payments to the provincial governments.
- The burden of this monetary tightening is being borne largely by the private sector, as it gets crowded out by the excesses of government borrowing for budgetary purposes and commodity operations.
Following is the complete text of Monetary Policy decision announced by State Bank of Pakistan here on Monday.
The economy's ability to achieve sustainable recovery remains constrained owing to slow progress in the prevailing security and economic conditions. The key economic variables impeding stabilization and thereby growth are high and persistent inflation, continuing fiscal slippages and unresolved power sector issues. Whereas adjustments in administered prices of fuel and energy and the post-flood disruption in the supply chain of food items have contributed to the recent upsurge in inflation, the high level of government borrowing from the SBP is diluting the effectiveness of monetary policy in containing excessive monetary expansion and thus inflation.
The need for such borrowing is largely emanating from a seemingly difficult fiscal predicament. While rising security and flood-related expenditures and continued power sector subsidies are one aspect of the problem, a narrow tax base and a declining tax to GDP ratio are bigger issues magnifying the fiscal challenges. The cost to the economy is being paid through erosion in the purchasing power of the rupee, growing total debt, and discouragement of productive private sector activity.
High inflation, at a fundamental level, persists because of money creation in excess of productive activity in the economy.
Of the Rs 308 billion expansion in reserve money up till 19th November 2010 during the current fiscal year, Rs 266 billion is due to government borrowing from the SBP, which has been on an increasing trend since January 2010. Such borrowing has stoked expectations of increasing inflation, resulting in high interest rates. The nature of this fiscal expansion is the fundamental source of high inflation in Pakistan over the last year.
Increases in electricity and domestic petroleum prices and the impact of the catastrophic floods on food prices did play their part in providing impetus to CPI inflation but do not fully explain the persistence in inflation. Further, apprehensions that these supply shocks would dramatically worsen the inflation outlook have thus far not fully materialized.
Temporary price hikes in the food category, as seen in a monthly increase of over 5 percent during August and September 2010, have somewhat subsided. As a result, in Oct 2010, CPI inflation posted a marginal decline of 0.4 percent on year-on-year basis, while a 0.6 percent growth on month-on-month basis was well below the last 12 month's average.
On the other hand, the persistent component of inflation, proxied by core trimmed inflation, remains sticky at over 12.5 percent on year-on-year basis since January 2010 and has increased to a 1 percent monthly change in October 2010, with expectations of further increases. An important source of this stickiness is the expectations of a persistent reliance of the government on SBP to finance its deficit.
Indeed, the co-movement between persistence of inflation and that of government's financing gap is no coincidence. Therefore, it would be difficult to bring inflation down unless government borrowing from SBP is curtailed substantially and kept under control on a sustained basis.
Government borrowing from SBP at an increasing rate reflects severe fiscal vulnerabilities. Given the delays in the introduction of tax reforms and weak industrial production, the task of achieving close to 27 percent enhancement in tax revenues during FY11 is beginning to look quite ambitious.
For increasing its capacity to raise revenues and contain inflationary borrowings from SBP within an explicit and clearly defined limit, the government has shown its intention to: i)- widen the tax net through introduction of the Reformed General Sales Tax (RGST) along with other tax measures; ii)- effectively contain the power sector subsidies; and, iii)- amend the SBP Act, including explicit limits on government borrowings from SBP, which is now in the final stage of legislation.
Together, these could potentially address the problem in the medium term of stubbornly high inflation expectations, reduce the cost of borrowing, and hence pave the way for long term economic growth. However, it may take some time before the benefits of such important measures, after their implementation, begin to have their impact.
In the mean time, pressing flood-related expenditures and shortfalls in external financing of the budget have increased reliance of the government on domestic sources. The seasonal increase in the working capital credit requirements of the private sector during the second quarter is also higher on the margin due to higher input prices.
Consequently, pressure on the banking system and interest rates has increased. With low growth in the banking system Net Foreign Assets (NFA) and deposits, liquidity management has also become challenging. Therefore, to further encourage the private sector, fiscal authorities need to demonstrate greater resolve in implementing their strategy to contain the fiscal deficit through fundamental structural reforms and their commitment to restrict inflationary central bank borrowings. However, the recent rejection of the two PIB auctions in Q1-FY11 and acceptance of Rs 50 billion instead of the Rs90 billion offered by the banks in the 16th November 2010 T-bill auction is apparently inconsistent with the stated intentions.
Assuming a real GDP growth of 2.5 percent and that the expected decline in private and public sector investment expenditures would be largely compensated by increases in public sector consumption expenditures, the external current account deficit is likely to be narrower in FY11 than earlier projections of 3.5 percent. Helped by higher cotton prices, the export earnings of $7.1 billion during first four months of the current fiscal year seem fairly encouraging.
Similarly, the recent trends in remittances coupled with expectations of realization of Coalition Support Fund (CSF) receipts could prove to be quite helpful in meeting import and other payments. The real test, however, would continue to be in the financing of the external current account deficit. Assuming that the projected external official inflows for FY11 do materialize, a substantial growth in private foreign inflows would be required to maintain and build foreign exchange reserves.
Monetary policy is essentially a short term instrument with which emerging risks and uncertainties are managed. The impact of monetary policy on economic activity and inflation is indirect and operates with a lag, and unlike the case of fiscal policy that tends to be reactive, it has to be proactive.
Under the present circumstances, if the expansionary fiscal position is not expected to translate into a high external current account deficit during the current fiscal year then it could be the case that the private sector demand is muted. Therefore, the monetary policy stance could probably remain unchanged. However, inflation is rising and showing persistence because of relentless government borrowing from the SBP. The rising NDA to NFA ratio of SBP balance sheet and its strong association with CPI inflation also suggest that inflation is likely to persist at double digit levels during much of FY11 and possibly in FY12.
SBP's efforts to counterbalance the rapid expansion in reserve money and arrest the rising inflation expectations would require an increase in the policy rate. After careful consideration of this trade-off, SBP has decided to increase the policy rate by 50 basis points to 14 percent with effect from Nov. 30, 2010.
A principled decision has also been taken to strictly implement the revised limits on borrowings of the provinces from SBP, even if it involves stopping payments to the provincial governments. SBP believes that the entire responsibility of tackling macroeconomic problems has been unfairly placed on monetary policy only.
SBP also understands that the burden of this monetary tightening is being borne largely by the private sector, as it gets crowded out by the excesses of government borrowing for budgetary purposes and commodity operations, with all its adverse implications for sustainable economic growth.
Labels: Monetary Policy, SBP
posted @ 11:01 AM,
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Monetary Policy, September 2010 - At A Glance
Monday, October 11, 2010
- State Bank raised Discount Rate by 50 basis points to 13.50 percent in the Monetary Policy Statement (MPS), effective from September 30th.Thus Repo market would operate in the range of 10.50 percent &13.50 percent.
- Economic growth for FY-11 can be down to 2.50 percent from 4.50 percent.Food inflation which reached 15.60 percent in August, would take two to three months before it reached to normal level. CPI Inflation could stay between 13.50 & 14.50 percent but anticipated rise in electricity prices, imposition of reformed GST and government’s reliance on SBP for borrowing will have implications on inflation expectations. To bring it down government will have to exercise fiscal discipline along with broadening of tax base.
- Government borrowed Rs 220 billion during July 1st –Sept 24th which is against the spirit of macroeconomic stabilization program.
- Imports began to surge again after contraction of 2.30 percent in FY- 10 and post floods scenario might lead to double digit increase in imports. Furthermore, SBP’s foreign exchange reserves and exchange rate would be under severe pressure if external current account deficit widen.
Labels: Economy and Business, Monetary Policy, SBP
posted @ 1:53 PM,
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Gold Included in Liquid Assets Definition
Thursday, July 22, 2010
The State Bank of Pakistan (SBP) included gold valuables under the definition of liquid assets for consumer and Small and Medium Enterprises (SME) financing. The central bank amended prudential regulations for consumer and SME financing and inserted gold ornaments and gold bullion in the definition of liquid assets.
The revised definition of liquid assets under the prudential regulations is:
“Liquid Assets are the assets, which are readily convertible into cash without recourse to a court of law and mean encashment/realisable value of government securities, bank deposits, gold ornaments, gold bullion, certificates of deposit, shares of listed companies, which are actively traded on the stock exchange, NIT units, certificates of mutual funds, certificates of investment (CoIs) issued by DFIs/NBFCs rated at least ‘A’ by a credit rating agency on the approved panel of the SBP, listed TFCs rated at least ‘A’ by a credit rating agency on the approved panel of the SBP and certificates of asset management companies for which there is a book maker quoting daily offer and bid rates and there is active secondary market trading. These assets with appropriate margins should be in possession of the banks/DFIs with perfected lien.”
The central bank said that all other instructions on the subject would remain unchanged.
Labels: Gold, Liquid Assets, SBP
posted @ 1:00 PM,
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Know Your Customer - State Bank Advice
Sunday, February 14, 2010
The State Bank advised banks on Saturday to prevent money transfers through ‘Benami Accounts’ and remain extra vigilant about Know Your Customer (KYC) requirements of the central bank.
This advice was given at a compliance forum arranged by the SBP in collaboration with the Financial Monitoring Unit (FMU) in Karachi on Saturday.
The meeting was part of the consultative approach being followed by the SBP to help build capacity of banks in their compliance framework.
Syed Irfan Ali, Director Banking Policy and Regulation Department, State Bank, briefed the participants about various steps taken by the central bank with regard to strengthening the regulations to curb money laundering and illegal transfer of funds.State Bank’s representatives provided detailed guidelines and clarifications to commercial banks for proper implementation of regulatory requirements.
Representatives of banks gave their suggestions to improve systems and procedures in this regard.
The meeting was attended, among others, by senior executives from the banking industry besides senior officials of the State Bank.
Labels: Commercial Banks, Know Your Customer, SBP
posted @ 6:12 PM,
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SBP Allows 100 Percent Advance Payment Against LCs
Tuesday, February 2, 2010
Refer to FE Circular No. 3 dated 29th April, 2008 and FE Circular No. 08 dated 8th July, 2008 in terms of which State Bank restricted advance payments against imports.
It has now been decided by State Bank of Pakistan vide F.E Circular No 1 issued on January 30, 2010 to allow advance payments against letters of credit upto 100% of the FOB or CFR value of the imported goods subject to the following terms and conditions:
- The bank will take all possible measures to verify the bonafides and genuineness of the transaction while processing advance payment request and may get the credit worthiness report of the foreign supplier before allowing advance payment.In order to secure advance payment, the bank may also ask the importer to obtain performance guarantee from the supplier’s bank.
- The bank will obtain an undertaking from the importer that in case goods are not received for any reason within the period of four months, the bank as well as the customer will ensure repatriation of the advance payment back.
- In case the importer is unable to import goods against advance payment within four months or the underlying contract is cancelled, the bank will recover a penalty @1% per month or part thereof on the amount of advance payment from the date of remittance till date of submission of shipping documents or repatriation of advance payment. The bank will deposit the penalty amount with the Exchange Policy Department, State Bank of Pakistan, Karachi through DD/PO. A monthly consolidated statement of all such cases will be submitted by head office of each bank to the Director, Exchange Policy Department, State Bank of Pakistan, Karachi.
- If a consistent behavior as mentioned at (c) above is observed where actual imports do not take place against advance payments, Authorized Dealer may debar the concerned importer from making any future advance payments under intimation to Exchange Policy Department, State Bank of Pakistan, Karachi. Strict compliance in this respect be ensured by ADs.
Labels: SBP
posted @ 10:55 AM,
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Homage To State Bank of Pakistan
Wednesday, November 25, 2009
The fourth annual Islamic Finance news Poll results are in after a record breaking 2,491 unique votes were cast by the Islamic finance industry’s leading practitioners and participants. In the financial sphere 2008 was deemed by many as an annus horribilis with the global markets plummeting following in-large to the US mortgage industry. The Islamic finance industry also succumbed to market forces but by and large fared better than its conventional counterparts.What is clear, from the results of the 2008 Islamic Finance news Poll, is that the more focused and specialized Islamic financial institutions are favored to those of the larger global historically conventional institutions with Islamic operations. With 2,491 votes cast, this is the industry’s most comprehensive and definitive survey.
In the Best Overall Islamic Bank category Kuwait Finance House again ran out easy favorites for the second year running. Malaysia’s CIMB Islamic Bank climbed one place to second this year with Saudi Arabia’s Al Rajhi Banking & Investment Corporation taking third spot. One notable absentee from this category is the two times winner and runner up in 2007, Dubai Islamic Bank.
As more of the world’s financial centers announce their interest in attracting Islamic finance to their shores one would assume the Best Central Bank in Promoting Islamic Finance category would be more competitive. Not so. For the fourth straight year Bank Negara Malaysia was voted number one with more than double the votes of their nearest rival, the State Bank of Pakistan, which itself leapfrogged the Central Bank of Bahrain into second place this year.
In new categories for the 2008 Poll, BMB Islamic won Best Islamic Shariah Advisory Firm and KFH Research was voted Best Islamic Research Firm. In a year when a number of banks collapsed or merged, the Islamic finance industry witnessed a number of new arrivals ensuring a hotly contested Best New Islamic Bank category, with the UK’s Gatehouse Bank scraping victory over Maybank Islamic in a close second.
In other categories, Norton Rose climbed from second in 2007 to first in the Best Law Firm in Islamic Finance, Moody’s Investors Service was voted Best Islamic Rating Agency, Path Solutions won Best Islamic Technology Provider, Oasis Asset Management is named Best Islamic Fund Manager and Takaful Ikhlas the Best Takaful / reTakaful Provider for 2008.
In the Best Islamic Banks by Country category there were notable wins for MCCA (Australia), Faisal Islamic Bank (Egypt), Bank of London and The Middle East (UK), and Bank Muamalat Indonesia.
To all the winners I offer my sincerest congratulations.
Labels: SBP
posted @ 11:37 AM,
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Mergers and Acquisitions of Commercial Banks
Monday, November 16, 2009
By Mr. Shoaib
One fine morning when our Governor SBP woke up from his sleep, he stated that the banks operating in Pakistan were too much and weak and therefore the Malaysian model needed to be followed where there were less but strong banks.
Consequently he came up with the idea to squeeze the banking strucutre by raising the minimum capital requirements which was later on pursued by his predecessors but later reversed and modified to make it work.As a result of this measure alone, the banking sector in Pakistan saw mergers and acquisitions. Today the banking system of Pakistan has become rock solid and undefeatable by any standards and does not carry any chance of failure due to systemic or any other risk.
With the mergers and acquisitions the quality of service, products and assets quality improved greatly, thanks to this measure. It has also added to the deepening of the capital and financial markets as in the case of Malaysia. As a result of this measure, the banking sector became so strong that it became a danger tro the economy. Consequently certain weak Islamic banks had to be introduced to balance the equation.
As a result of this measure, the banking services which previously were available to less than 18% of the people suddenly became available to all and sundry as in the case of the Malaysian model and today nobody can say that people do not have access to the banking services. As a result of reduction of number of banks, the number of banking staff stood considerably reduced adding to the profitability of the banking sector and the deterioration in the assets quality was made up from this source .
The emerging victorous Presidents of the newly merged entity, preferred not to continue with the exisiting employees and decided to hire the old team from his previous bank. As a result the employees of the newly merged bank who were told that their services would no longer be required as also employees of the bank who expected that they would be hired by the newly merged entity, stopped working and started to look for new opening and business came to a standstill.
Later the surrendered team alongwith the defeated President were declared redundant and were sent home where they are now serving abroad in various insitituions and contributing to their respective economies.
One fine morning when our Governor SBP woke up from his sleep, he stated that the banks operating in Pakistan were too much and weak and therefore the Malaysian model needed to be followed where there were less but strong banks.
Consequently he came up with the idea to squeeze the banking strucutre by raising the minimum capital requirements which was later on pursued by his predecessors but later reversed and modified to make it work.As a result of this measure alone, the banking sector in Pakistan saw mergers and acquisitions. Today the banking system of Pakistan has become rock solid and undefeatable by any standards and does not carry any chance of failure due to systemic or any other risk.
With the mergers and acquisitions the quality of service, products and assets quality improved greatly, thanks to this measure. It has also added to the deepening of the capital and financial markets as in the case of Malaysia. As a result of this measure, the banking sector became so strong that it became a danger tro the economy. Consequently certain weak Islamic banks had to be introduced to balance the equation.
As a result of this measure, the banking services which previously were available to less than 18% of the people suddenly became available to all and sundry as in the case of the Malaysian model and today nobody can say that people do not have access to the banking services. As a result of reduction of number of banks, the number of banking staff stood considerably reduced adding to the profitability of the banking sector and the deterioration in the assets quality was made up from this source .
The emerging victorous Presidents of the newly merged entity, preferred not to continue with the exisiting employees and decided to hire the old team from his previous bank. As a result the employees of the newly merged bank who were told that their services would no longer be required as also employees of the bank who expected that they would be hired by the newly merged entity, stopped working and started to look for new opening and business came to a standstill.
Later the surrendered team alongwith the defeated President were declared redundant and were sent home where they are now serving abroad in various insitituions and contributing to their respective economies.
Labels: Commercial Banks, SBP
posted @ 12:23 PM,
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Hedging Technique - Forward Contracts
Tuesday, October 13, 2009
Query from Abdul Haseeb
I want to ask regarding hedging techniques, if a company import raw material and pay their debt after two months from receiving of goods by this means the company may bear exchange loss due to price fluctuation risk, In my opinion this... type of risk can be mitigate through hedging techniques such as forward contacts. Please let me know that forward contracts are permissible now a days?
Comment: No, These days State Bank of Pakistan does not allow to book forward rates against imports as this transaction was intentially used for forged transaction.
I want to ask regarding hedging techniques, if a company import raw material and pay their debt after two months from receiving of goods by this means the company may bear exchange loss due to price fluctuation risk, In my opinion this... type of risk can be mitigate through hedging techniques such as forward contacts. Please let me know that forward contracts are permissible now a days?
Comment: No, These days State Bank of Pakistan does not allow to book forward rates against imports as this transaction was intentially used for forged transaction.
posted @ 12:41 PM,
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Monetary Policy Decision - 29th September 2009
Wednesday, September 30, 2009
Macroeconomic considerations and outlook that influence monetary policy decision depict a mix picture. While inflation (YoY) and balance of payment position has improved, fiscal and real sector performance remains tenuous. Domestic financial markets functioned adequately but lending to the private sector has remained subdued. From a forward looking perspective, expected improvement in the external current account and emerging global economic recovery augur well for Pakistan’s economy. But, limited progress on electricity shortages and stressed fiscal position dilute some of the optimism. Similarly, inflation outlook is not completely benign yet as depicted by recent monthly trends. Under these circumstances, assessment of balance of risks continues to be somewhat uncertain.Both CPI and core inflation have declined further in August 2009, with former at 10.7percent and Non food Non energy (NFNE) measure of the latter at 12.6 percent on year-on-year basis. But, the pace of decline in inflation was less than expected. The monthly increase of over 1.5 percent in CPI inflation in the first two months of FY10 is still quite high and of concern. This monthly increase coupled with administrative issues in the supply chain of food items and projected increases in electricity prices to eliminate subsidies could have a bearing on the behaviour of domestic inflation in the coming months. Increase in international oil prices remains an underlying risk to inflation as well.
However, the likely presence of Ramadan seasonality in the CPI index, especially the food basket, and disproportionate contribution of only a few items calls for caution in interpreting recent monthly inflation indicators. Similarly, the effect of cost push shocks like electricity and oil on inflation may be neutralized by below capacity economic activity and slow aggregate demand. Moreover, expectations of inflation are likely to remain in check while the stabilization program remains on track. While it is likely that inflation will continue its secular decline, as observed in our last communication, there are risks to watch as we go forward.
Tapering aggregate demand pressures in the economy can be clearly seen in persistent and widespread decline in imports. Supported by continued strong inflow of worker’s remittances, this fall in import growth has resulted in a modest surplus of $82 million in the external current account for August 2009. Even the cumulative July-August, FY10 external current account deficit of $527 million is much lower than earlier projections.
Similarly, on the back of favourable revisions regarding outlook of Pakistan’s economy by international rating agencies, portfolio inflows are now positive; $55 million in the first two months of FY10. This, together with inflows from the IMF, both for budgetary support ($745 million) and allocation of increased Special Drawing Rights (around $1200 million), and adequate, though lower, foreign direct investments substantially improved the external financial account. Resultantly, the SBP’s foreign exchange reserves have increased to $10.9 billion as on 28th September, 2009 – an improvement of $1.8 billion since the beginning of FY10 – and is reflected in Rs123.6 billion increase in the Net Foreign Assets (NFA) during 1st July – 19th September, 2009. This has helped liquidity conditions in the economy and translated into bringing stability to the foreign exchange market.
This improvement in balance of payments is despite a significant shortfall in non-IMF official financial inflows. Non realization or shortfall in these official inflows could pose a potential problem for fiscal management, which faces significant pressure on both the expenditure and revenue side of the budget and has already posted a fiscal deficit of 5.2 percent of GDP for FY09 – 0.9 percentage points higher than the targeted level.
Provisional figure of Rs106.6 billion government borrowing from the SBP during 1st July – 19th September, FY10 also indicate the extent of fiscal position’s weakness in the current quarter. This borrowing was despite the fact that Ministry of Finance realized Rs333 billion in the six Q1-FY10 T-bill auctions while adhering to an advance auction target of Rs325 billion for the quarter. However, this financing pressure along with recent uptick in market interest rates and liquidity tightness is largely cyclical and is mostly due to the month of Ramadan and Eid festival. Likely reversal of these phenomena along with the retirement of wheat financing and improvement in external flows is expected to improve the market liquidity in the coming months and flow of credit to the private sector.
Sustainable recovery of real sector of the economy would not be possible without revival of business environment and availability of credit to private sector, which in turn depends on the elimination of electricity shortages among other factors. Moreover, stagnant private sector investment can hurt the potential output of the economy, adversely impacting inflation persistence. However, recent steps taken towards resolution of the circular debt issue could lead to the resumption of private sector credit in the coming months.
In conclusion, there are some risks to inflation while the economy gradually stabilizes. Moreover, uncertainty regarding the outcome of ongoing fiscal consolidation, resolution of electricity problem, and timing of official foreign inflows call for prudence at this point. Therefore, there will be no change in the SBP’s policy rate, which will remain at 13 percent. These issues are likely to determine SBP’s policy trajectory in the coming months.
Progressing further on the formation of the Monetary Policy Committee (MPC), Central Board of Directors of SBP has finalized the composition of this nine member committee. In addition to the Governor of the SBP, Syed Salim Raza, and Deputy Governor, Yaseen Anwar, three SBP executives – Riaz Riazuddin (economic advisor), Asad Qureshi (executive director, financial markets and reserve management), and Hamza Ali Malik (director, monetary policy department) – will be the internal members. Board of Directors of SBP will be represented by Mirza Qamar Beg and Tariq Sayeed Saigol while Hafiz Pasha and Shahid Kardar will join as external members. This committee will start its deliberations in November 2009. To harmonize the constitution of MPC with the legal framework of SBP and make it fully independent, amendments in the SBP Act have already been submitted for the legislative process. Until their enactment, the MPC will seek approval of its recommendations from the Board of Directors of the SBP.
Labels: Economy and Business, Monetary Policy, SBP
posted @ 11:07 AM,
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Export Finance Mark-Up Rate Facility
Thursday, September 3, 2009
In pursuance of entry 7 of item 29A of Schedule II to the Rules of the Business, 1973, the Federal Government, is pleased to make the following Order that shall come into force from September 01, 2009.
a) Effective 1st September 2009 the Federal Government shall provide mark-up rate support of 2.5% to the exporters of Textile Industry on outstanding balances of principal amount of loans availed by the industry from commercial banks for export of eligible commodities under State Bank’s Export Finance Scheme (EFS).
b) The facility shall be administered by the commercial banks or DFIs. They will make the payment to the extent of mark-up rate support on the outstanding balance of EFS loans availed by the borrower of textiles sector and claim reimbursement from SBP.
c) It shall be paid by the commercial banks on six month basis in March and September each year subject to the release of necessary budgetary allocation by the Federal Government for relevant fiscal year.
d) The State Bank of Pakistan (SBP) shall reimburse the amount of mark-up rate support to commercial banks by debit to the appropriate Federal Government account to be intimated by Finance Division.
e) The units eligible for the facility shall furnish on line information to the Ministry of Textile Industry in the manner specified in Annexure I to this Order. Hard copy of the same will be submitted to the Ministry of Textile Industry after verification by the textiles associations concerned.
f) The units so registered will be provided with Special Identification Numbers to be used in all future communications will be eligible for the facility.
g) The registered units shall furnish data and any information related to the unit’s operations, domestic sales, accounts and exports as and when required by the Ministry of Textile Industry.
a) Effective 1st September 2009 the Federal Government shall provide mark-up rate support of 2.5% to the exporters of Textile Industry on outstanding balances of principal amount of loans availed by the industry from commercial banks for export of eligible commodities under State Bank’s Export Finance Scheme (EFS).
b) The facility shall be administered by the commercial banks or DFIs. They will make the payment to the extent of mark-up rate support on the outstanding balance of EFS loans availed by the borrower of textiles sector and claim reimbursement from SBP.
c) It shall be paid by the commercial banks on six month basis in March and September each year subject to the release of necessary budgetary allocation by the Federal Government for relevant fiscal year.
d) The State Bank of Pakistan (SBP) shall reimburse the amount of mark-up rate support to commercial banks by debit to the appropriate Federal Government account to be intimated by Finance Division.
e) The units eligible for the facility shall furnish on line information to the Ministry of Textile Industry in the manner specified in Annexure I to this Order. Hard copy of the same will be submitted to the Ministry of Textile Industry after verification by the textiles associations concerned.
f) The units so registered will be provided with Special Identification Numbers to be used in all future communications will be eligible for the facility.
g) The registered units shall furnish data and any information related to the unit’s operations, domestic sales, accounts and exports as and when required by the Ministry of Textile Industry.
Labels: Export Finance Scheme, LTFF, SBP, Textile
posted @ 1:14 PM,
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Mark-up Rate Support for Textile Sector
In pursuance of entry 7 of item 29A of Schedule II to the Rules of the Business, 1973, the Federal Government is pleased to make the following Order that shall come into force from September 01, 2009.
- Effective 1st September 2009 the Federal Government shall provide Mark-up Rate support on all outstanding running balances of principal amount of floating rate long terms loans availed by the textiles industry from commercial banks/Development Finance Institutions (DFIs), disbursed up to August 31, 2009, for financing import/purchase of textile machinery for which funds under State Bank’s Long Term Financing Facility (LTFF) have not been availed.
- The support will be admissible to the extent of 5% or the difference in mark- up rate between floating rate loan and LTFF rate, whichever is lower.
- The facility shall be administered by the commercial banks or DFIs. They will make the payment to the extent of mark-up rate support on the outstanding balance of loans availed by the borrower of textiles sector and claim reimbursement from SBP.
- It shall be paid by the commercial banks/DFIs on six month basis in March and September each year subject to release of necessary budgetary allocation by the Federal Government for relevant fiscal year.
- The State Bank of Pakistan (SBP) shall reimburse the amount due to commercial banks/DFIs by debit to the appropriate Federal Government account to be intimated by Finance Division.
- The units eligible for the facility shall furnish on line information to the Ministry of Textile Industry in the manner specified in Annexure I to this Order. Hard copy of the same will be submitted to the Ministry of Textile Industry after verification from the associations concerned.
- The units so registered will be provided with Special Identification Numbers to be used in all future communications will be eligible for the facility.
- The registered units shall furnish data and any information related to the unit’s operations, domestic sales, accounts and exports as and where required by the Ministry of Textile Industry.
posted @ 1:04 PM,
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Liquidity Management
Saturday, August 1, 2009
In order to ensure prudent liquidity management by banks, it has been decided that henceforth Advances to Deposits Ratio (ADR) of any bank shall not exceed 70% at any time. For this purpose, the terms “Advances” and “Deposits” are defined as follows:
Advances:
All Loans / Advances (on gross basis) less refinance availed from SBP under Export Refinance and Long Term Financing Facility (LTFF) Schemes and lending to other banks.
Deposits:
All types of deposits including Demand, Savings, and Time Deposits less deposits / placements from other banks.
Advances:
All Loans / Advances (on gross basis) less refinance availed from SBP under Export Refinance and Long Term Financing Facility (LTFF) Schemes and lending to other banks.
Deposits:
All types of deposits including Demand, Savings, and Time Deposits less deposits / placements from other banks.
posted @ 10:58 AM,
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CRR and SLR
Wednesday, July 22, 2009
CRR is Cash Reserve Requirement - need to be placed with SBP @ 5% of Demand & Time Liabilities (for both PKR and FCY).
SLR is Statutory Liquidity Reserve - required to be invested into SBP's prescribed securities (generally Govt. Securities) @19% of Demand & Time Liabilities. This is applicable for PKR only, as for FCY, is is 15% and is required to be placed with the SBP.
However, banks are not required to keep above 'PKR' related requirements against Demand & Time Liabilities with 'original maturity of 1 year and above.
SLR is Statutory Liquidity Reserve - required to be invested into SBP's prescribed securities (generally Govt. Securities) @19% of Demand & Time Liabilities. This is applicable for PKR only, as for FCY, is is 15% and is required to be placed with the SBP.
However, banks are not required to keep above 'PKR' related requirements against Demand & Time Liabilities with 'original maturity of 1 year and above.
posted @ 11:42 AM,
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LTFF Scheme For Usance LCs of Plant and Machinery
Saturday, June 27, 2009
In order to further facilitate the export oriented industries following amendments have been made in LTFF Scheme with immediate effect:-
- LCs (sight and usance) established before the announcement of the LTFF Scheme and retired after June 30, 2007 shall also be eligible for financing under the Scheme. However, LCs which have been retired through own sources of the sponsors of the export oriented industries, shall not be eligible under the Scheme.
- Financing for plant, machinery & equipment to be used by the export oriented projects for regeneration of textile waste into usable fiber for producing value added exportable products shall also be eligible under the subject Scheme.
- Refinancing shall be allowed to the extent of 50% of financing provided by banks/DFIs to the eligible borrowers availing facilities under para i & ii, while the remaining 50% will be financed by the banks/DFIs from their own sources as per the terms & conditions of financing banks/DFIs agreed with the borrowers.
Source: State Bank of Pakistan
posted @ 9:34 AM,
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