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Concept Of Central Bank

• Constitutes the apex of the monetary structure• Constitutes banking structure of its country

• Issues the currency • Regulates the money supply

• Monitors banking system of its respective countries• Performs best it can in the national economic interest

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CENTRAL BANK OF PAKISTAN• State Bank of Pakistan (SBP) Is the central bank of Pakistan.

• SBP is regulated under “The State Bank Of Pakistan Act 1956”

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Establishment Of State Bank Of Pakistan

• On May 1948 Muhammad Ali Jinnah took steps to establish the State Bank Of Pakistan.

• The State Bank Of Pakistan came operation under “State Bank Of Pakistan Order 1948 on July 1, 1948.

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VISION STATEMENT “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”

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MISSION STATEMENT “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.”

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Historical Background• Reserve Bank of India was the central bank of Subcontinent before

Independence.

• On 30 December 1948 the British Government’s commission distributed the Reserve Bank of India’s reserves between Pakistan (30%) and India (70%).

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Mr. Ashraf Mahmood Wathra

Governor, State Bank of Pakistan

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Organizational Structure Of State Bank Of Pakistan

Board of Directors

• The Central Board consists of 9 members• The Governor (who is chairman)

• The Secretary Finance Division, Government of Pakistan• Seven Directors including one Director from each Province (nominated by the Federal Government)

• The Directors are appointed for terms of up to three years.

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Management The management of the Bank consists of

1. Governor (Chief Executive Officer) 2. Deputy Governors(One or more)3. Executive Directors4. Economic Advisor 5. Directors of various departments.

• The Federal Government appoints Deputy Governors.

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Independence Of SBP

• The State Bank of Pakistan(amendment) Act. 1997 states : “No government or quasi governmental body or agency shall issue directives directly or indirectly, to any banking company or any other any other financial institution regulated by the Bank”

• This law ensures that State Bank can work independently with government intervention.

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Departments• There are different departments of SBP Some of them are:

1. Banking Inspection Department2. Banking Policy And Regulation Department3. Research Department4. Exchange Policy Department5. IT Departments6. SMEs And Microfinance Department7. International Markets And Investment Departments8. Islamic Banking Department9. Monetary Policy Department10. Agricultural Credit Department 12

MUHAMMAD USMAN

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TRADITIONAL

FUNCTIONS

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PRIMARY FUNCTIONS OF STATE BANK OF PAKISTAN

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Issue Of Notes

• State bank of Pakistan has the sole right of issuing notes.• Issued its first notes from 1st October 1948 in the denominations of

Rs.5, Rs.10 and Rs.100

• Coin are issued directly by federal government• Issues currency notes in denomination of 10, 20, 50, 100, 500, 1000

and 5000 rupees.

• There are three offices of issue at Karachi, Lahore, Peshawar • A number of currency chest all over the country.

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Conduct of Monetary and Credit Policy

• Formulate and monitor monetary & credit policy by viewing the Federal Govt.'s targets for growth and inflation.

STATUTORY CASH RESERVE

• Every scheduled bank is required to maintain with State Bank a balance the amount of which shall not at the close of business as may be determined by State Bank.

• Presently the requirement is 5% on weekly average basis subject to daily minimum of 4% of Time & Demand Liabilities

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STATUTORY LIQUIDITY REQUIREMENT

• Every banking company shall maintain in Pakistan in cash, gold or un-encumbered approved securities an amount which shall not at the close of business in any day be less than percentage of the total of its time & demand liabilities in Pakistan, as notified by State Bank from time to time. •Presently the requirement is 15% (excluding 5% statutory cash reserve) of the total of its time and demand liabilities in Pakistan

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Controller of Credit•A National credit consultative council was setup in 1972 for the purpose of monitoring and controlling credit. •Helps to arrange the credit and investment facilities. •Adopted following tools to control credit:-      1. Open market operation2. Bank rate policy3.  Changes in reserves ratio4.  Changes in margin requirements5.  Change in liquidity ratio•      Moral persuasion and publicity

   

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Clearing House• State bank of Pakistan acts as the clearing-house for the commercial

banks working within the country.

• Shows the financial position of various banks

• Helps commercial bank to settle inter bank transactions

• Reduces the excessive use of cash

• Controls the harmful competition among banks21

Regulation & Supervision of Financial System

• It is a principal task of SBP to make sure that financial system is sound.

• Vast powers under Pakistani law to monitor financial system

• Monitors the banking activities through a combination of off-site monitoring and on site inspection

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Banker’s Bank State Bank also functions as the bankers ‟bank”

Banks are classified as1. Scheduled Bank2. Non Scheduled Bank

Scheduled Banks are entitled to certain facilities from the State Bank and in return they have some obligations to it

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Banks Registered with SBPTYPE OF BANK NUMBER OF BANKS

Public Sector Banks 5

Private Banks 17

Specialized Banks 4

Islamic Bank 5

Foreign Bank 6

Micro Finance Banks 10

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Banker to Government• Conducts the banking business of1. Federal Government2. Provincial Government 3. Government agencies.

• Accepts the deposits of cash, cheques and drafts by the government.

• Federal and Provincial governments keep their deposits with the Bank free of interest.

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Lender Of The Last Resort

• Provides loan and re-discount facilities to scheduled banks in times of dire need when they are short of cash.

• These loans are essentially short-term in nature and are advanced to enable the banks to meet their temporary requirements of funds.

• Bank provide this facility against government security and trade bill agriculture bill etc.

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SAFIAN TASEER

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SECONDARY FUNCTIONSOF STATE BANK

OF PAKISTAN

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Public Debt Management

• Public debt means all the money that the government is liable to pay.

• Responsible for the management of government debt under SBP Act

• In order to efficiently manage the public debt, a department namely, Securities Department was setup in 1990.

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Management of Foreign Exchange

• Bank is responsible to:1. keep the exchange rate of the rupee at an appropriate

level 2. prevents it from wide fluctuations.

• Is the custodian of country’s external reserves

• State Bank is also responsible for the management of the foreign exchange reserves

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Advisor to Government• SBP acts as an advisor to the Government on financial and economic matters particularly with reference to their monetary aspects

• The advisory role of the Bank has been made mandatory in SBP Act 1956.

• Bank submits its review of the economy to the Parliament through its annual and quarterly reports

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Relationship With International Agencies

.• On Behalf of the government of Pakistan SBP deals with the 1.IMF 2.World bank 3.Central banks of foreign countries4.Other International Financial Organizations•The governor SBP accompanies the minister of finance in AGM of the IMF and World bank

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NON TRADITIONAL

FUNCTIONS

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Development of the Banking System

• Contributes in the facilitating and fostering of the banking system in Pakistan.

• At time of independence it was a challenge for sbp to develop banking system in Pakistan

• State bank of Pakistan is playing a leading role in the promotion of Islamic banking in Pakistan

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Training Facilities to Bankers• Institute of Bankers Pakistan is an institution working under SBP that

provide the country with trained bankers

• Training Division provides courses on central and commercial banking

• National Institute of Banking and Finance (NIBAF), Islamabad provides special training to bankers also puts special emphasis on Islamic Banking

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Credit to Priority Sectors

• SBP has also introduced various credit schemes to channel resources towards priority sectors like:

1. Export finance scheme2. Mandatory credit for agriculture3. Small business4. Small industries

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Islamization of the Banking System

• The state bank has also been involved in the process of Islamization of the economy in general and the banking system in particular

• Considerable amount of research work is undertaken in Islamic economics division which includes: 1. The nature and connotation of riba‟, 2. The shari‟a position of present day interest based financial system,3. Various alternatives to interest and the fiscal system of Islam.

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1.  

Major steps taken towards Islmization of BankingSystem in PakistanEstablishment of Shariah BoardSpecial Cash Reserve for Islamic BanksIslamic Export Refinance SchemeAccounting & Auditing Organization for Islamic Financial InstitutionsFull membership of Islamic Financial Services Board

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Economic Growth• Played a very significant role in the growth of the banking infrastructure.

• Gives special importance towards the development of capital market in the country.

• Provides assistance to the government in development planning

• All this results in economic growth and development. 39

Economic Information• State bank collects the information all over the country and

world throughout the year.• annually publishes its report which is an extremely important

document. • This exact information is very helpful in making economic

planning which is necessary for the economic development

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Particulars 2014 2013

Total Asset(RUPEES IN 000) 4,830,797,752

(RUPEES IN 000)4,037,949,839

Deposits Of Banks And Financial Institutions

530,746,356 475,647,801

Payable To The International Monetary Fund

384,994,742 431,794,003

Foreign Currency Account And Investments

963,680,793 641,958,085

Financial Analysis

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STRENGTHS• It saves every schedule bank from bankruptcy . This is the reason it is called LENDER OF LAST RESORT.

• Strong Internal control of transactions therefore no fraud has been done.

• State Bank of Pakistan been able to control and manage financial needs of Pakistan since Independence.

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WEAKNESSES • Technological Backwardness

• Rapid Change in Governors

• Staff is not trained for using software's.

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OPPORTUNITIES

• Use Of Mobile Banking, Internet Banking On A Large Scale

• Upgrading Financial Infrastructure

• Promotion Of Micro Finance Finance Banking

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THREATS• Political instability and pressure can harm operations of

SBP

• Excessive borrowing from governments

• Circulation of fake currency

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CONCLUSION

State Bank of Pakistan is the only bank which perform in the best interest of country. It must make some more policies to make commercial bank to best perform in the best interest of Pakistan

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