CENTRAL BANKS AND

STATE BANK OF PAKISTAN

ADNAN QAYUM

IMTIAZ HUSSAIN

MUHAMMAD WAQAS

SAIF ULLAH

QAISER ABBAS

DEFINITION OF BANK

According to Prof. Crowther “Bank is an institution which gets the loan to lend & in this way creates credit money.”

Prof. R.KENT “ Bank is an organization whose principle operations are concern with accumulating surplus money from general public and advancing others for expenditure.”

ORIGIN OF BANKS

Various views about of BANKS & word BANK Word BANK is derived from Italian word

Bancus means “BENCH” or Derived from German word Banque means

“FIRM”

Origin of Central Banks dependent on the origin of normal Banks

Which are Commercial Banks nowadays So First origin of Commercial Banks Then origin of Central Banks

ORIGIN OF COMMERCAIL BANKS

Origin can be traced to 600 BC According to G. Crowther in his famous

book written on MONEY Named “An Outline of Money” Banks has three developmental

stages THE MERCHANTS THE GOLDSMITH THE MONEY LENDRS

1. MERCHANTS STAGE

Earliest & first stage of banking relates to the working of Merchants

They were traders of commodities Trading from place to place Risky for them to carry metallic money for

payments Traders with high reputation begin to issue

RECIPTS as money for mode of payments Thus Merchant Banking forms in the world “Bank Draft” is a modern shape of that

receipts.

2. GOLDSMITHS STAGE

Second stage relates to Goldsmiths They were called “Seiths” in India They used to receive Gold & silver for safe

custody They begin to issue receipts for those metallic

money Receipts were payable on demand Thus Goldsmiths receipts became Medium of

Exchange So termed as fore-runner s of modern bank note Today “Cheque” is a modern form of that

receipts

3. MONEY LENDERS STAGE

Third stage of Banking Development When Goldsmiths became money lenders to

people Through experience they keep small portion of

Gold & Silver to meet customers demand Start lending the extra metallic money to

depositors and needy people So give rise to overdraft and lending

facilities Extra lending, less reserves, different receipts

started problem and confusion in people This leads to failure of banking system at that

time

TO FIX ALL THOSE PROBLEMS AND BRINGS CONFIDENCE OF PEOPLE ON BANKING SYTEM

CENTRAL BANKS CAME IN TO EXISTANCE

CONFRENCE AT NUREMBERG

A conference was held in Nuremberg, Germany in 1548

In order to cover loop holes in banking system

Decided that a BANK should be set up by STATE which should streamline banking organization and rules regarding banks.

First central bank was formed in Geneva,1578.

Geneva, Switzerland , 2nd most populous city

Zurich, the most populous city of the world nowadays (Switzerland)

ORIGIN OF CENTRAL BAKNS

Before WW1 (1914-18), there was few countries having central banks

After WW1, huge confusion in currency and exchange markets round the world

Large withdrawals from banks which brought failure to banks

So to control supply of money and credit in economy and maintain stable business conditions

Conference held in 1920 at Brussels, Belgium

Mandatory of CB for every country in the world

DEFINITION OF CENTRAL BANK

CENTRAL BANK is an institution that manages a nation's currency, money supply, and interest rates . Central banks also oversee the commercial banking system of their respective countries.

Central bank is also called Reserve Bank

Monitory Authority

FAMOUS CENTRAL BANKS OF WORLD

FEDRAL RESERVE SYSTM BANK OF JAPAN PEOPLE’S BANK OF CHINA BANK OF ENGLAND THE BANK OF RUSSIA Central Bank Rep; of

Turkey Reserve Bank of Australia Reserve Bank Of India State Bank Of Pakistan

1913, Washington, USA 1882, Tokyo 1948, Beijing 1694, London 1860, Moscow 1932, Ankara (CBRT) 1960, Sydney 1911, Mumbai 1948, Karachi

NAMES Established, Headquartes

STATE BANK OF PAKISTAN

INTRO

STRUCTURE &

FUNCTIONS

HISTORY Before 1947, FRBI was the central bank of Sub-

continent After separation Reserves Division of FRBI was

70:30 in between India and Pakistan By  British Government's commission in 1948 30 % reserve of Gold means = 750 million Muhammad Ali Jinnah inaugurated SBP The State Bank of Pakistan commenced operation

on July 1, 1948 SBP works under State Bank Act 1956.

STATE BANK OF PAKISTAN State Bank of Pakistan Act 1956,defines rights

and duties of State Bank

According to Act SB REQUIRES TO ISSUE NOTES, KEEPING RESERVES,

TO REGULATE THE MONETORY AND CREDIT SYSTEM OF THE PAKISTAN WITH THE BEST NATIONAL INTEREST.

SB will be required to perform not only the usual Central Banking functions but will also be entrusted with the prosperity, stability, and growth of the domestic economy

FACTS & FIGURES CENTRAL BANK : PAKISTAN ESTABLISHED : 1948 HEADQUATER: KARACHI REGIONAL BRANCHES:LAHORE

ISLAMABAD

PESHAWAR

QUETTA SUB BRANCHESMULTAN

SUKKAR

D.I.KHAN FOREIGN RESERVES: $ 17B RECENT GOVERNOR: YASEEN ANWAR OFFICIAL WEBSITE: www.sbp.org.pk Banks & other institutions under-control: 55

ORGANIZATIONAL STRUCTURE AND SECTIONS

BOARD OF DIRECTORS

12 Members (March 2012) 1 Governor ( Yaseen Anwar ) 2 Deputy Governors (Banking & Operations) 7 Executive Directors (1 from each province) 2 Chief Economic Advisors ( Monitory Policy &

Other Policy Development) SBP is an autonomous body President Appoints Governor Of SBP All the decisions taken by SBP are

independent

FUNCTIONS OF SB

PRIMARY ISSUE OF NOTES MONITORY POLICY GOVT: BANK SUPERVISION OF BANKS LENDER LAST RESORT etc

SECONDARY MANAGEMENT OF F.

EXCHANGE MANAGEMENT OF PUBLIC

CREDIT ADVISOR TO GOVT: RELATIONSHIP WITH IFI

TRAINING FACILTY DEVELOPMENT OF

FINANCIAL INSTITUTIONS

CREDIT PRORITIES TO DIFFERENT SECTORS

ISLAMIZATION OF BANKING SYSTEM

TRADITION NON-TRADATIONAL

1. ISSUING CURENCY/ NOTES Sole authority to issue notes in Pakistan except coins SBP is following Minimum Reserve System to issue

note 20-30% of notes are backed by Gold & Silver reserves Up to 1965, Proportion Reserve system was followed The amount of notes in circulation can be adjusted

according to the general price level and economic activity in the country

METHODS OF ISSUING NOTES: Fixed Fiduciary System Proportion Reserve system Minimum Reserve System

2.FARMING AND OPERATION OF MONITORY OR CREDIT POLICY

SB frames & operates Monitory Policy in Pakistan Monitory Policy is conducted by SB to regulate and

control the volume of money and credit supply in the country in order to achieve to achieve specific economic objectives like

Full Employment Price Stability Increase in Production Increase in Investment Economic Development Stability of Capital Market Proper Distribution Of Wealth Exchange Rate Stability Increase Exports Improve Standard of Living

TOOLS OF MONITORY POLICY All the tools are used to expand & contract

money supply in the country Main instrument of monitory policy are OPEN MARKET OPERATION In OPO SB buys or sell govt: securities in open market By buying G.Securities expands money supply while

selling contracts money supply in the country CHANGING RESERVE REQUIREMENTS (Rs.

19billion) Mandatory cash reserve ratio kept by commercial

banks with SB Increase in reserve ratio reduces the excess

reserves/cash with banks and in turn reduces level of advances (to reduce inflation)

TOOLS OF MONITORY POLICY

Decrease in CRR, increases the advances to the public which results in high production, employment & investment etc

CHANGING THE DISCOUNT RATE The rate at which SB discounts the bills of

exchange for commercials banks is called discount rate.

Rise the bank rate pushes up the cost of borrowing of commercial banks which reduces money supply in country

Vice versa

3. REGULATIONS & SUPERVION OF BANKS SB has full powers to supervise and control the

banking system in Pakistan Powers relate to Credit ratings of banks Performance of banks Licensing of banks Their branch expansion Liquidity of assets of banks Management and methods of working of banks Inspection of banks Amalgamation, Reconstruction & liquidation of

banks

4. FOREIGN EXCHANGE MANAGEMENT SB acts as a custodian of foreign exchange reserve Manages exchange control Fixing value of Rupee with foreign currencies Check flight in & out of reserves of the

country Paying off external debts Correct adverse BOP (balance of payments) Agent of Government in respect of Pakistan’s

membership with IMF, World Bank etc

5. SB AS A CLEARING HOUSE

SB acts ac a clearing house for commercial banks

A place where representatives of different banks meet each day to exchange cheques drawn on each other & then settle the differences owed to each other

SB helps in huge flow of money in less transactions

Handles other problems in this regards

6.ADVISER TO GOVERNMENT

SB acts as an advisor to Government in all financial matters

As SB is involved directly in money, foreign exchange markets, inflation etc so gives advices to Govt:

Gives advice on all monitory & It also provides advices to Commercial banks Other financial institutions Commerce & trade Industry

7. BANKER & AGENT TO GOVERNMENT SBP acts as an agent & banker of

Government It receives deposits, cheques & drafts on

behalf of Government and deposited in government account

It pays on behalf of Government SBP gives short term advances to

Government It provides foreign exchange to Govt; to

purchase goods & repay external debts It collects taxes from banks and individual

accounts on behalf of Government

8.LENDER OF LAST RESORT

SBP is the lender of last resort for the commercial banks

Anytime, bankers are short of cash reserves, State Bank comes to rescue them

It also provides cash to banks by rediscounting bills of exchange and treasury bills

Thus helps & maintains liquidity solvency of commercial banks

9. STATE BANK & ECONOMIC GROWTH SBP is playing significant role in facilitating and

fostering economic development and growth of financial Market (banks and other F. institutions)

Key role in the development of Capital market (PIBs)

Under SB’s Export Finance Scheme, Commercial Banks provides finance to exporters at low rate, & also provide other facilities

SB helped in establishing specialized credit institutions for meeting medium &long term financial needs of various sectors of economy.

SPECIALIZED CREDIT INSTITUTIONS

Industrial Development Bank of Pakistan (IDBP)

SME Bank Limited House Building Finance Company Limited

(HBFC) Zarai Taraqiati Bank Limited Investment Corporation of Pakistan (ICP) National Investment Trust (NIT) Equity Participation Fund (EPF) Pakistan Industrial Credit & Investment

Corporation (PICIC)

OTHER FUNCTIONS

Training facilities to new employees Helping and promoting in Islamic Banking Target of credits to commercial banks in field

of agriculture, industry and housing Assistance to Specialized Financial

Institutions Annual reports on development and different

sectors of economy Conduct different surveys

THANKS

ANY QUESTION?