State Bank

ARSLAN

Our Vision To transform SBP into a modern and dynamic central bank, highly professional and efficient, fully equipped to play a meaningful role, on sustainable basis, in the economic and social development of Pakistan

Our Mission To promote monetary and financial stability and foster a sound and dynamic financial system, so as to achieve sustained and equitable economic growth and prosperity in Pakistan.

BANK STATE BANK OF PAKISTAN

FUNCTIONS

TRADITIONAL FUNCTIONS

PRIMARY FUNCTIONS SECONDARY FUNCTIONS NON TRADITIONAL FUNCTIONS

The Primary Functions including issue of notes, regulation of the financial system, lender of the last resort, and conduct of monetary policy. The Secondary Functions including management of public debt, management of foreign exchange, advising the Government on policy matters, anchoring payments system, and maintaining close relationships with international financial institutions.

Terms to know • • • • • •

Trustee Demand liabilities Time liabilities Money market Credit securities

• • • •

Credit instruments T bill Bill of exchange Bank rate

Bank A financial institution that accepts deposits, extends credit and channels the money into the lending activities.

Common features of a bank • Accepting deposits from the public • Lending money to the public • Transferring money from one place to other (Remittances) • Acting as trustee • Managing govt. business

Types of banks • • • •

Retail bank Investment bank Islamic bank Central bank

Retail bank • Manages small and individual businesses – – – – –

Commercial bank Community development bank Saving bank Mortgage bank Private bank

Investment bank • Manages the activities on the financial markets – Merchant bank – Cooperative bank – Consumer bank

Islamic bank • Adheres the concept of Islamic methods in banking • Revolves around well established concepts based on Islamic cannon

Central bank • Principal monetary authority of the nation Oldest Central Bank • The central bank of Sweden(1668) • The bank of England(1694) • U.S federal reserve created by U.S congress(1913)

Scheduled banks • Functioning under direct supervision of central bank

Non scheduled banks • Working on there on All banks in Pakistan are scheduled

SBP

History • Reserve bank of India as the central bank of Pakistan(1947) • Distribution of reserves of India’s bank • Establishment of state bank on July 1 1948

Constitution • Order 1948 • Regulating issue of notes • Keeping reserves for monetary stability

• 1956 act of S.B.P • • • •

Regulating issue of notes Keeping reserves for monetary stability Utilization of countries resources Foster the growth of credit system of Pakistan

Power of State Bank • Power increased in 1956,1974 and 1997 act of S.B.P • Complete autonomy to • • • • •

Regulate banking Issue notes Stabilizing exchange rates Promote investment Control inflation

Share Capital • • • •

Original share capital 3 crore 51% by central govt. 49% by private sector Nationalized in 1974

Management • Chief executive is governor (for three years) • One or more deputy governors (for five years) • Present governor of state bank of Pakistan Dr. Salim Raza

Departments • • • • • • •

Accounts dept. Issue dept. Administration dept. Audit dept. Banking dept. Engineering dept. Exchange control dept.

• • • • • • •

Legal division Research dept. Security dept. Statistic dept. Training dept. Agriculture dept. Public relations training dept.

Head Quarter and Offices • Head quarter at Karachi • Sixteen local offices at: Hyderabad, Multan, Faisalabad, Sukkar, Quetta, Lahore, Peshawar, Gujranwala, D.I khan, Sialkot, Muzaffarabad, Rawalpindi, Bahawalpur, Islamabad.

Functions

FUNCTIONS • Traditional functions – Primary functions – Secondary functions

• Non traditional functions

Primary Functions • • • • • •

Bank of issue Bankers to the government Regulation of financial system Bankers bank Conducting the monetary policy Lender of the last resort

Bank of issue • • • •

Regulation of the currency requirements Sole authority to issue notes Issue of coins(1%) by govt. Issue of notes commemorative notes and coins(99%) by S.B.P

Issue Departments • • • •

Lahore Karachi Peshawar Queta

Systems of issuing notes • Fixed fiduciary system • Proportional reserve system

Fixed fiduciary system • Issue of notes to a certain limit without reserves • 100% reserves after crossing the limits

Proportional reserve system • Keeping 20% reserves for every note being issued • Reserves as gold, silver bullions, foreign exchange etc.

Banker to the government • • • •

Hold cash balance of govt. Providing short term loans Salaries of govt. employees Collection of taxes

Regulation and supervision of the financial system • Safe guards and stabilizes the financial system • Monitoring the performance of the banking companies • Regulation of Banks like DFI and MFB

Regulation and supervision of the financial system • • • • •

Off-site monitoring On-site monitoring Prudential regulations Rules of business CAMELS (capital, assets quality, management soundness, earnings, liquidity and sensitivity to other risks)

Bankers bank •Statuary reserves of scheduled banks •Provide loans by rediscounting of bills •Provide guidance

Bankers bank • Fixation of cash/deposit ratio • Weekly statements and annual reports • Sole authority to determine the authorized •

and paid up capital

Conduct of monetary policy Control of total credit in the country and total money supply is monetary policy

Objectives • Regulation of money supply • To stabilize interest rate • To increase the employment opportunities. • To increase investment. • Price control

METHODS OF CREDIT CONTROL. 1.

QUANTITATIVE CONTROL

3.

QUALITATIVE CONTROL

QUANTITATIVE CONTROL • Bank rate policy • OMO • Variation in reserve requirement • Credit rationing • SBP 3 day repo rate • T-bill auction rate

BANK RATE POLICY • Bank rate is the rate at which a central bank rediscounts bills of exchange. • A tool to control and regulate – central money supply – bank loans – structure of interest rates

• SBP’s current bank rate is 7.5%

OPEN MARKET OPERATIONS • Sales and purchase of govt. securities in the open market • OMO is a tool to regulate – currency circulation – credit policies of other banks.

• 80 OMO’s in the year 2006

VARIATION IN RESERVE REQUIRMENT • To decrease money supply SBP raises the reserve ratio CREDIT RATIONING • a useful tool to control money supply.

SBP 3 DAY REPO RATE. • 3 days lending facility through reverse repo transactions. T-BILL AUCTION RATE • SBP 3 day repo rate influences the yield of T-bills sold through auction.

QUALITATIVE CONTROL • Change in margin requirement • Moral persuasion • Publicity • Direct-action

LENDER OF THE LAST RESORT • SBP provides loans and rediscount facilities to scheduled banks in times of need. • These loans are short term in nature.

Secondary functions • Public debt management • Exchange rate management • Advisor and agent to the government • Relationship with IFIs

Public debt management • The public debt act 1944 – Subscribing govt. securities at the time of issue – Sale and purchase of securities – Interest payment to holders of public debt instruments

EDMD • Exchange and debt management department – To manage public debt – Created in Feb 2000

Management Of Foreign Exchange • Responsibilities of S.B.P. for Management of Foreign Exchange: – Sales/Purchase of • Gold & Silver • Foreign exchange • Transactions of special drawing rights with I.M.F

Exchange rate systems • Link of Pak rupee with pound and dollar • Managed floating exchange rate system – Value of rupee determined on daily base

• Market based floating exchange rate system – Value of rupee determined by demand

Management Of Foreign Exchange • Keeping the records of payment obligations • investment of surplus reserves to ensure liquidity of funds & maximize earnings

S.B.P as Advisor to Govt. • Recommendations to the govt. on – Economic – Financial – Agricultural credit – Industrial finance – Savings

• Agent to buy foreign exchange

Relationships With IFIs • Agreements of provincial & Federal Govt. with IFIs • IFIs include: – Bank for International settlements – World Bank – Central Banks of Foreign Countries

Non traditional functions OBJECTIVES • To enhance the economic growth • To promote the fuller utilization of economic resources • To expand the scope of banking operations

Non traditional functions • Development of banking system • Development of specialized financial institutions • Training facilities to bankers • Credit to priority sectors

Development of banking system • Need for independent authority for monetary control • Contribution to rehabilitation of the banking system in Pakistan • Collapse of commercial banking system

Development of banking system • Commercial banking system • Islamic banking system • Creation of microfinance institutions

Commercial banking • • • • •

Establishment of NBP Reserve internal banking for local banks Introduction of foreign banks in Pakistan Financial sector liberalization At present – 7301 local commercial banks – 105 foreign commercial banks

Microfinance institutions • Introduction of microfinance banks – Khushali bank (public sector) – First microfinance bank FMFB (private sector)

• At present – 6 MFB’s operating in Pakistan – 3060 branches – 700000 borrowers

Islamic banking • Establishment of sharih board – Comprising two religion scholars and three experts – Advise S.B.P on Islamic banking system

• At present – 3 local Islamic banks – 1 foreign Islamic bank

Year Wise Entry of Players • • • • • • • • • • • • • •

2003 1. Meezan Bank 2. Bank of Khyber 3. MCB Bank 4. Bank Alfalah 2004 1. Albaraka Islamic Bank 2. Habib Bank AG Zurich 3. Standard Chartered 4. Metropolitan Bank 5. Soneri Bank 2005 1. Habib Bank 2. Bank Al Habib

Year Wise Entry of Players • • • • • • • • • •

2006 1. Dubai Islamic Bank 2. Bank Islami Pakistan 3. ABN Amro N.V. (Now RBS Bank) 4. Askari Bank Ltd. 5. National Bank 6. United Bank Ltd. 2007 1. Emirates Global Islamic 2. Dawood Islamic Bank

Development of specialized financial institutions • To provide long and medium term financing facilities – PICIC – IDB – HBFC

Development of specialized financial institutions • To provide short term finance facilities – SME bank – The equity participation funds – Bankers equity corporation

Training facilities of S.B.P • Institute of bankers Pakistan • Training departments • NIBAF • SEANZA courses

Institute of bankers Pakistan • Established in 1951 for conducting examination in banking courses • Training programs offered by IBP – On-site training – Over seas training – Training by international speakers – Training in IT

Training departments • 1981-82 two training departments established at – Karachi – Lahore

• Secure training position for bank officials

NIBAF • National institute of banking and finance • Training programs conducted – SBOT – Joint Directors training – Research officers training – International courses on central and commercial banking

SEANZA courses • South East Asia, new Zealand and Australia association of central banks • SEANZA courses held each year in one of its member countries • S.B.P hosted the 5th and 20th SEANZA courses

Credit to priority sectors • Credit schemes to channel resources towards priority sectors • Spending credit to increase efficiency in all the sectors of economy

Credit to priority sectors Credit schemes • Credit guarantee scheme • Credit to agriculture • Export finance scheme