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Management of Financial Institutions

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Management of Financial Institutions - MGT 604
VU
Lecture # 6
STATE BANK OF PAKISTAN
The State Bank of Pakistan (SBP) is the central bank of Pakistan. While its constitution,
as originally lay down in the State Bank of Pakistan Order 1948, remained basically
unchanged until January 1, 1974, when the bank was nationalized, the scope of its functions
was considerably enlarged. The State Bank of Pakistan Act 1956, with subsequent
amendments, forms the basis of its operations today. The headquarters are located in the
financial capital of Pakistan, Karachi with its second headquarters in the capital, Islamabad.
History
Before independence on 14 August 1947, the Reserve Bank of India (central bank of India)
was the central bank for what is now Pakistan. On 30 December 1948 the British
Government's commission distributed the Bank of India's reserves between Pakistan and
India - 30 percent (750 M gold) for Pakistan and 70 percent for India.
The losses incurred in the transition to independence were taken from Pakistan's share (a
total of 230 million). In May, 1948 Muhammad Ali Jinnah (Founder of Pakistan) took steps
to establish the State Bank of Pakistan immediately. These were implemented in June 1948,
and the State Bank of Pakistan commenced operation on July 1, 1948.
Functions
Under the State Bank of Pakistan Order 1948, 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".
A large section of the state bank's duties were widened when the State Bank of Pakistan Act
1956 was introduced. It required the state bank to "regulate the monetary and credit system
of 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 February
1994, the State Bank was given full autonomy, during the financial sector reforms.
On January 21, 1997, this autonomy was further strengthened when the government issued
three Amendment Ordinances (which were approved by the Parliament in May 1997).
Those included were the State Bank of Pakistan Act, 1956, Banking Companies Ordinance,
1962 and Banks Nationalisation Act, 1974. These changes gave 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
amendments to the Banks Nationalisation Act brought the end of the Pakistan Banking
Council (an institution established to look after the affairs of NCBs) and allowed the jobs of
the council to be appointed to the Chief Executives, Boards of the Nationalised Commercial
Banks (NCBs) and Development Finance Institutions (DFIs). The State Bank is having a
role in their appointment and removal. The amendments also increased the autonomy and
accountability of the chief executives, the Boards of Directors of banks and DFIs.
The State Bank of Pakistan also performs both the traditional and developmental functions
to achieve macroeconomic goals. The traditional functions may be classified into two
groups:
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Management of Financial Institutions - MGT 604
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1.
The primary functions including issue of notes, regulation and supervision of the
financial system, bankers' bank, lender of the last resort, banker to Government, and
conduct of monetary policy.
2.
The secondary functions including the agency functions like management of public
debt, management of foreign exchange, etc., and other functions like advising the
government on policy matters and maintaining close relationships with international
financial institutions.
The non-traditional or promotional functions, performed by the State Bank include
development of financial framework, institutionalisation of savings and investment,
provision of training facilities to bankers, and provision of credit to priority sectors. The
State Bank also has been playing an active part in the process of islamisation of the banking
system.
Regulation of Liquidity
The State Bank of Pakistan has also been entrusted with the responsibility to carry out
monetary and credit policy in accordance with Government targets for growth and inflation
with the recommendations of the Monetary and Fiscal Policies Co-ordination Board without
trying to affect the macroeconomic policy objectives.
The state bank also regulates the volume and the direction of flow of credit to different uses
and sectors, the state bank makes use of both direct and indirect instruments of monetary
management. During the 1980s, Pakistan embarked upon a program of financial sector
reforms, which lead to a number of fundamental changes. Due to these changed the conduct
of monetary management which brought about changes to the administrative controls and
quantitative restrictions to market based monetary management. A reserve money
management programme has been developed, for intermediate target of M2 that would be
achieved by observing the desired path of reserve money - the operating target.
Banking
The State Bank of Pakistan looks into a lot of different ranges of banking to deal with the
changes in economic climate and different purchasing and buying powers. Here are some of
the banking areas that the state bank looks into;
State Bank's Shariah Board Approves Essentials and Model Agreements for Islamic
·
Modes of Financing
Procudure for Submitting Claims with Sbp In Respect of Unclaimed Deposits
·
Surrendered By Banks/Dfis.
Banking Sector Supervision in Pakistan
·
Micro Finance
·
Small Medium Enterprises (SMEs)
·
Minimum Capital Requirements for Banks
·
Remittance Facilities in Pakistan
·
Opening of Foreign Currency Accounts with Banks in Pakistan under new scheme.
·
Handbok of Corporate Governance
·
Guidelines on Risk Management
·
Guidelines on Commercial Paper
·
Guidelines on Securitization
·
·
SBP.Scheme for Agricultural Financing
Bank Assets and Liabilities
·
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Management of Financial Institutions - MGT 604
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This is a chart of trend of major assets and liabilities reported by scheduled commercial
banks to the State Bank of Pakistan with figures in millions of Pakistani Rupees.
Year
Deposits
Advances
Investments
2002
1,466,019
932,059
559,542
2006
2,806,645
2,189,368
799,285
Departments
Agricultural Credit
·
Audit
·
Banking Inspection
·
Banking Policy
·
Banking Supervision
·
Corporate Services
·
Economic Policy
·
Exchange and Debt Management
·
Exchange Policy
·
Human Resource
·
Information System
·
Islamic Banking
·
Legal Services
·
Payment System
·
Research
·
Statistics
·
Real Time Gross Settlement System (RTGS System)
·
Small and Medium Enterprises
·
Governor
The principal officer of the SBP is the Governor. During December 2005, the President of
Pakistan appointed Dr. Shamshad Aktar as the new Governor of the State Bank for a three
year term, to replace Dr. Ishrat Hussain, who retired on December 1, 2005.
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Table of Contents:
  1. Financial Environment & Role of Financial Institutions:FINANCIAL MARKETS &INSTITUTIONS
  2. FINANCIAL INSTITUTIONS:Non Banking Financial Companies
  3. CENTRAL BANK:Activities and responsibilities, Interest Rate Interventions
  4. POLICY INSTRUMENTS:Open Market Operations, Capital Requirements
  5. BALANCE OF TRADE:Balance of Payments Equilibrium, Public Policy and Financial Stability
  6. STATE BANK OF PAKISTAN:History, Regulation of Liquidity, Departments
  7. STATE BANK OF PAKISTAN - VARIOUS DEPARTMENTS:Banking Inspection Department
  8. STATE BANK OF PAKISTAN - VARIOUS DEPARTMENTS (Contd.):Debt Management
  9. STATE BANK OF PAKISTAN - VARIOUS DEPARTMENTS (Contd.):Training Programs by SBP
  10. STATE BANK OF PAKISTAN - VARIOUS DEPARTMENTS (Contd.):Human Resources Department
  11. MAJOR DRIVERS OF FINANCIAL INDUSTRY:GLOBAL FINANCIAL SYSTEM, The World Bank
  12. INTERNATIONAL FINANCIAL INSTITUTIONS:ADB Projects in Pakistan, Paris Club
  13. PAKISTAN ECONOMIC AID & DEBT:Macroeconomic Stability, Strengthening Institutions
  14. INCREASING FOREIGN DIRECT INVESTMENT:Industrial Sector, Managing the Debt
  15. ROLE OF COMMERCIAL BANKS:Services Typically Offered by Banks, Types of banks
  16. ROLE OF COMMERCIAL BANKS:Types of investment banks, The Management of the Banks
  17. ROLE OF COMMERCIAL BANKS:Public perceptions of banks, Capital adequacy, Liquidity
  18. ROLE OF COMMERCIAL BANKS:Problem bank management, BANKING SECTOR REFORMS
  19. ROLE OF COMMERCIAL BANKING:Private Deposit Insurance,
  20. BRANCH BANKING IN PAKISTAN:Remittances, Online Fund Transfer
  21. ROLE OF COMMERCIAL BANKS IN MICRO FINANCE SECTOR
  22. Mutual funds:Types of international mutual funds, Mutual funds vs. other investments
  23. Mutual Funds:Criticism of managed mutual funds, Money Market Fund
  24. Mutual Funds:Balanced Funds, Growth Funds, Specialized Funds, Measuring Risks
  25. Mutual Funds:Cost of Ownership, Redemption Fee, Reports to Shareholders
  26. Mutual Funds:Internet Fraud, The Pyramid Scheme, How to Avoid Investment Fraud
  27. Mutual Funds:Investing In International Mutual Funds, How to Pre-Select a Mutual Fund
  28. Role of Investment Banks:Recent evolution of the business, Possible conflicts of interest
  29. Letter of Credit:Elements of a Letter of Credit, Commercial Invoice, Tips for Exporters
  30. Letter of Credit and International Trade:Terminology, Risks in International Trade
  31. Foreign Exchange & Financial Institutions:Investment management firms, Exchange Traded Fund
  32. Foreign Exchange:Factors affecting currency trading, Economic conditions include
  33. Leasing Companies:Basic Purpose of Leasing, Technological Benefits
  34. The Leasing Sector in Pakistan and its Role in Capital Investment
  35. Role of Insurance Companies:Indemnification, Insurer’s business model
  36. Role of Insurance Companies:Life insurance and saving
  37. Role of financial Institutions in Agriculture Sector:What is “Revolving Credit Scheme”?
  38. Agriculture Sector and Financial Institutions of Pakistan:What is SMEs
  39. Can Government of Pakistan Lay a Pivotal Role in this Sector?:Business Environment
  40. Financial Crimes:Process of Money Laundering, Terrorist Financing
  41. DFIs & Risk Management:Managing Credit Risk, Managing Operational Risk
  42. Banking Fraud & Misleading Activities:Rogue Traders, Uninsured Deposits
  43. The Collapse of ENRON:Auditing Issues, Corporate Governance Issues, Corrective Actions
  44. Classic Financial Scandals:Corruption, Discovery, Black Wednesday
  45. RECAP:FINANCIAL INSTITUTIONS, CENTRAL BANK,