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IN THE NAME OF ALLAH THE MOST BENEFICENT AND THE MOST MERCIFUL ALLAH ALONE IS THE HELPER
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A STUDY PROJECT OF STATE BANK OF PAKISTAN Session 2007-09 Project Advisor: Mr. Tasaddaque Hussain Warriach Lecturer Submitted By
Rehana Shaffi MA-F07-MBA-098
Department of Business Administration University of Gujrat
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CERTIFICATE
It is to certify that the following student has completed her project
on
STATE BANK OF PAKISTAN
Rehana Shaffi MA-F07-MBA-098
It is certified that following student has successfully completed her project as prescribed by the teacher. Project Advisor ------------------------ External Examiner ------------------------ Head of Department Department of Business ------------------------ Administration UOG Gujrat
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Dedication
This work is respectfully dedicated to my Parents
and Teachers
Who did their best to uplift me to the heights of ideal and successful life.
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Acknowledgement
First and foremost, I like to thank Allah Almighty who gave me knowledge and strength to complete this project. Secondly I pay my sincere gratitude and thanks to my teacher Mr. Tasaddaque Hussain Warriach for his guidance, support and his encouragement throughout this project. His valuable suggestions have been greatly appreciated. I would like to express my special thanks and deepest gratitude to my seniors and my friends for their help to complete this project. My deepest thanks go to my understanding family.
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ABSTRACT This project will cover the main functions and history of State Bank of Pakistan and many more topics which are related to SBP like its department and the functions of its departments. This project will provide me an opportunity to learn about working of SBP. State Bank of Pakistan is the Central Bank of the country. While its constitution, as originally lay down in the State Bank of Pakistan Order 1948, remained basically unchanged until 1st January 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. Under the State Bank of Pakistan Order 1948, the Bank 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". The scope of the Bank’s operations was considerably widened in the State Bank of Pakistan Act 1956, which required the 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". Under financial sector reforms, the State Bank of Pakistan was granted autonomy in February 1994. On 21st January, 1997, this autonomy was further strengthened by issuing three Amendment Ordinances (which were approved by the Parliament in May, 1997) namely, State Bank of Pakistan Act, 1956, Banking Companies Ordinance, 1962 and Banks Nationalization Act, 1974. The changes in the State Bank Act 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 in Banks Nationalization Act abolished the Pakistan Banking Council (an institution established to look after the affairs of NCBs) and institutionalized the process of appointment of the Chief Executives and Boards of the nationalized commercial banks (NCBs) and development finance institutions (DFIs), with the Sate Bank having a role in their appointment and removal. The amendments also increased the autonomy and accountability of the Chief Executives and the Boards of Directors of banks and DFIs.
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Like a Central Bank in any developing country, State Bank of Pakistan performs both the traditional and developmental functions to achieve macro-economic goals. The traditional functions, which are generally performed by central banks almost all over the world, may be classified into two groups: (a) 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, and (b) 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, institutionalization 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 islamization of the banking system.
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Table of Contents Acknowledgement……………………………………………………6 Abstract…………………………………………………………… 7 Definition of Central Bank……………………………………… 12 Importance of Central Bank……………………………………….12
History…………………………………………………………………………..12
Establishment of state bank of Pakistan………………………….. 13 Quaid-e-Azam Speech…………………………………………… 15 Vision and Mission of State Bank of Pakistan…….....................17 Present Governor of State Bank of Pakistan……………………………………………………17 Past Governors of State Bank of Pakistan………………….19 Central Board of Directors……………………………….21 Core functions of state bank of Pakistan……………….22 Role of state bank in the economic development of Pakistan………30 Autonomy for State Bank of Pakistan………………………….33 Departments of State Bank of Pakistan………………………34 Agricultural Credit Department………………………………………..37 Banking Inspection (On-Site) Department………………………………..39 Banking Surveillance Department……………………………………………41 Business Support Services Department…………………………………………44 Domestic Market & Monetary Management Department……………………..47
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Economic Analysis Department…………………………………………………49 Exchange Policy Department…………………………………………………….51 Finance Department…………………………………………………………….53 Financial Markets Strategy & Conduct Department…………………………56 Legal Services Department………………………………………………….58 Human Resource Department…………………………………………………..61 Information Systems & Technology Department………………………………63 Internal Audit & Compliance Department……………………………………..65 Islamic Banking Department…………………………………………………….68 Monetary Policy Department……………………………………………………71 Off-site Supervision & Enforcement Department……………………………73 Research Department…………………………………………………………….78 Real Time Gross Settlement System ………...………………………………… 86 Small and Medium Enterprises Department…………………………………..83 Statistics and Data Warehouse Department…………………………………..82 Strategic and Corporate Planning Department……………………………….80 Statutory Obligation (RMD)…………………………………………………….85 Meeting the challenge Creating a successful central bank……..……….87 References…………………………………………………………………..91
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Definition of Central Bank:
Central banks are normally government owned banks, often charged with quasi-regulatory responsibilities, e.g. supervising commercial banks, or controlling the cash interest rate. They generally provide liquidity to the banking system and act as Lender of last resort in event of a crisis.
Importance of central Bank:
Central bank plays an important role in the economy of any country because it plays various roles and functions like it controls money supply in an economy and creates credit and many more functions which discussed below.
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.
At the time of independence, the immediate and foremost task of the Government of Pakistan was to establish a Central Bank so that it soul have an independent currency and banking system. As the newly sovereign infant State had to tackle innumerable complex problems arisen on account of Partition of the Sub-continent, it was decided with India that the Reserve Bank of India would continue to act as the Central Bank and currency authority for Pakistan till the establishment of its own central Bank. The transitional arrangement of having one Central bank for the independent countries was promulgated by Governor-General of undivided India on August 14, 1947 by an order called “Monetary System and Reserve Bank Order 1947”.The main provisions of “The Pakistan Monetary System and Reserve Bank Order 1947” were as follows:
1. The Reserve Bank of India would be the sole note issuing authority in Pakistan till September, 1948.
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2. The Indian notes will remain legal tender in both Pakistan and India until 30th September, 1948. The Govt. of Pakistan will issue its own currency from October 1, 1948.
3. The Reserve Bank of India would transfer the assets of value equal to
Pakistani notes to the Govt. of Pakistan after 30th September, 1948. 4. The coins issued by the Govt. of India would remain legal tender in Pakistan
for at least one year from the date of issue of Pakistani coins.
5. The Reserve Bank of India would perform the full functions of Central Bank in Pakistan up to September 30, 1948.
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ESTABLISHMENT OF STATE BANK OF PAKISTAN: Immediately after partition, the newly born State was faced with a serious banking situation due to wholesale migration of the banking staff to India. The Reserve Bank of India showed reluctance in solving the banking crisis, it rather created father difficulties by refusing to giver Rs. 55 core which Pakistan was entitled to share the cash balance of the undivided India. The government Of Pakistan then realized that the Reserve Bank of India cannot be relied upon and further dependence on it would endanger the very existence of Pakistan. It, therefore, decided to establish its own currency authority earlier than it was mutually agreed upon. The Reserve Bank of India was relieved of its functions in Pakistan from the first day of July, 1948. The Governor-General of Pakistan late Quaid-e-Azam Muhammad Ali Jinnah issued order for the establishment of State Bank of Pakistan on 1st of July 1948. according to the State Bank Order 1948, the Bank is entrusted with the duty of “regulating the issue of bank notes and keeping of reserve with a view to seeking monetary stability in Pakistan and generally to cooperate the currency and credit system of the country to its advantage. This order of 1948 has been substituted by the State Bank of Pakistan Act, 1956 which requires the 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 stability and full utilization of the country’s productive resources”. The State Bank according to the Act of 1956 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. Share Capital: The original share capital of the Bank is three crore of rupees divided into three lac fully paid up shares of Rs. 100 each. Of the total share capital 51%was contributed by the Central Government and the balance 49% was subscribed by the private sector. In order to keep the foreign influence aloof, only permanent citizens of Pakistan are allowed to purchase the share of the Bank. Upton 31st December 1973, the State Bank was a Government cum shareholders bank in terms of its original statute. Under the Bank Nationalization Ordinance 1947, the State Bank has been a purely Government owned institution. The private shareholders are compensated by the Federal Government through endowment of negotiable bonds repayable at par at any time within a period of 15 years. Constitution: The State Bank of Pakistan as envisaged in the State Bank of Pakistan Order is not guided by profit motive in its operation. It is to regulate the monetary and credit system of Pakistan. It fosters its growth in the best national interest with a view to securing monetary stability and fuller utilization of the country’s productive resources. The general supervision and direction of the affairs of the Bank vests in a Central Board of Directors which consists of one Governor, one more Deputy Governor and nine Directors. There is also an Executive Committee which is empowered to
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transact business on behalf of the Central Board of Directors. The chief executive of the bank is the Governor who controls and directs the affairs of the Bank of behalf of the Central Board. The Central Directorate of State Bank of Pakistan has 14 departments employing over 5000 persons.
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Quaid-e-Azam Speech
On the occasion of the Opening Ceremony of the State Bank of Pakistan on 1st July, 1947
The State Bank of Pakistan on 1st July, 1948. "Mr. Governor, Directors of State Bank, Ladies and Gentlemen. The opening of the State Bank of Pakistan symbolizes the sovereignty of our State in the financial sphere and I am very glad to be here today to perform the opening ceremony. It was not considered feasible to start a Bank of our own simultaneously with the coming into being of Pakistan in August last year. A good deal of preparatory work must precede the inauguration of an institution responsible for such technical and delicate work as note issue and banking. To allow for this preparation, it was provided, under the Pakistan Monetary System and Reserve Bank Order, 1947, that the Reserve Bank of India should continue to be the currency and banking authority of Pakistan till the 30th September, 1948. Later on it was felt that it would be in the best interests of our State if the Reserve Bank of India were relieved of its functions in Pakistan, as early as possible. The State of transfer of these functions to a Pakistan agency was consequently advanced by three months in agreement with the Government of India and the Reserve Bank. It was at the same time decided to establish a Central Bank of Pakistan in preference to any other agency for managing our currency and banking. This decision left very little time for the small band of trained personnel in this field in Pakistan to complete the preliminaries and they have by their untiring effort and hard work completed their task by the due date which is very creditable to them, and I wish to record a note of our appreciation of their labors. As you have observed, Mr. Governor in undivided India banking was kept a close preserve of non-Muslims and their migration from Western Pakistan has caused a good deal of dislocation in the economic life of our young State. In order that the wheels of commerce and industry should run smoothly, it is imperative that the vacuum caused by the exodus of non-Muslims should be filled without delay. I am glad to note that schemes for training Pakistan nationals in banking are in hand. I will watch their progress with interest and I am confident that the State Bank will receive the co-operation of all concerned including the banks and Universities in pushing them forward. Banking will provide a new and wide field in which the genius of our young men can find full play. I am sure that they will come forward in large numbers to take advantage of the training facilities which are proposed to be provided. While doing so, they will not only be benefiting themselves but also contributing to the well-being of our State.
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I need hardly dilate on the important role that the State Bank will have to play in regulating the economic life of our country. The monetary policy of the bank will have a direct bearing on our trade and commerce, both inside Pakistan as well as with the outside world and it is only to be desired that your policy should encourage maximum production and a free flow of trade. The monetary policy pursued during the war years contributed, in no small measure, to our present day economic problems. The abnormal rise in the cost of living has hit the poorer sections of society including those with fixed incomes very hard indeed and is responsible to a great extent for the prevailing unrest in the country. The policy of the Pakistan Government is to stabilize prices at a level that would be fair to the producer, as well as the consumer. I hope your efforts will be directed in the same direction in order to tackle this crucial problem with success. I shall watch with keenness the work of your Research Organization in evolving banking practices compatible with Islamic ideas of social and economic life. The economic system of the West has created almost insoluble problems for humanity and to many of us it appears that only a miracle can save it from disaster that is not facing the world. It has failed to do justice between man and man and to eradicate friction from the international field. On the contrary, it was largely responsible for the two world wars in the last half century. The Western world, in spite of its advantages, of mechanization and industrial efficiency is today in a worse mess than ever before in history. The adoption of Western economic theory and practice will not help us in achieving our goal of creating a happy and contended people. We must work our destiny in our own way and present to the world an economic system based on true Islamic concept of equality of manhood and social justice. We will thereby be fulfilling our mission as Muslims and giving to humanity the message of peace which alone can save it and secure the welfare, happiness and prosperity of mankind. May the Sate Bank of Pakistan prosper and fulfill the high ideals which have been set as its goal. In the end I thank you, Mr. Governor, for the warm welcome given to me by you and your colleagues, and the distinguished guests who have graced this occasion as a mark of their good wishes and the honor your have done me in inviting me to perform this historic opening ceremony of the State Bank which I feel will develop into one of our greatest national institutions and play its part fully throughout the world." Quaid-i-Azam Muhammad Ali Jinnah 1st July, 1948
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Vision of State Bank of Pakistan: Our vision is to develop the SBP BSC (Bank) into a strong and dynamic institution, equipped with an efficient and professional human resource base, having the requisite technology and fully capable of providing quality service to stakeholders, while complementing the State Bank of Pakistan in achieving its objectives. Mission of State Bank of Pakistan: Our mission is to maintain an efficient currency management system and to provide reliable banking services that are responsive to the changing environment, so as to command trust and respect of our stakeholders.
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Present Governor of State Bank of Pakistan Profile: BIO-DATA OF DR. SHAMSHAD AKHTAR GOVERNOR STATE BANK OF PAKISTAN (2nd January, 2006)
Dr. Shamshad Akhtar took over as Governor, State Bank of Pakistan on 2nd January, 2006 for a three-year term. Dr. Akhtar, who is the first woman and the 14th Governor of the State Bank since its inception in July, 1948 brings rich experience, both national and international, to her new assignment.
Prior to her appointment as SBP Governor, Dr. Akhtar has been serving the Asian Development Bank (ADB) as its Director General, Southeast Asia Department since January, 2004. Earlier, she was Deputy Director General of the Department. She also held the position of Director, Governance, Finance and Trade Division for East and Central Asia Department of ADB.
Dr. Akhtar began her career in ADB in 1990 and rose to the position of Manager in 1998 after serving as Senior and Principal Financial Sector Specialist. She has been ADB’s Coordinator for APEC Finance Ministers Group from 1998-2001 and has served on a number of ADB committees including the Reorganization Committee, Appeals Committee and Oversight Committee etc. She has interfaced and represented the Asian Development Bank at the Bank for International Settlements and the International Organization of Securities Commissions (IOSCO). She has developed a broad regional expertise in financial and economic matters of Central Asian Republics & Southeast Asia including the People’s Republic of China.
Before joining the ADB, Dr. Akhtar worked for 10 years as an Economist in the World Bank’s Resident Mission in Pakistan. In Pakistan, she also worked briefly with the Planning Offices of both the Federal and Sindh Governments. She dealt with wide ranging subjects which covered analysis of macroeconomic situation, finance and money and structural reforms of key sectors including industry and agriculture. Her work included papers on taxation system of Pakistan, state of inter-
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governmental fiscal relations, poverty incidence & its dimensions and foreign direct investment etc. Dr. Akhtar also contributed to the development of diversification of financial markets including the analysis of monetary policy and state of banking industry (at the World Bank) and restructuring of the Securities & Exchange Commission, Insurance Commission and worked closely with the private sector including the stock exchanges of Pakistan. She has been advising the central banks on reforms of financial markets. Dr. Akhtar has also been dealing with the banking sector’s legal, regulatory and institutional reforms while advising on diversification of the industry to exploit long term funding through development of bond market.
Born in Hyderabad, Dr. Akhtar had her earlier education at Karachi and Islamabad. She has had an excellent academic record. She graduated from the University of Punjab with a B. A. Economics degree in 1974. Dr. Shamshad Akhtar has a M.Sc. in Economics from the Quaid-e-Azam University, Islamabad, an M.A. in Development Economics from the University of Sussex in 1977 and a Ph.D. in Economics from the U.K.’s Paisley College of Technology in 1980. She is a post-doctoral fellowship Fulbright Scholar and was a visiting fellow at the Department of Economics, Harvard University in 1987.
Dr. Akhtar has presented numerous papers on economics and finance at international conferences/seminars/symposia. Her research interests are on Monetary and Fiscal Policy, Banking and Capital Market, International Finance Architecture, Regulation and Supervision, and Industrial & Corporate Restructuring.
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Past governors of state bank of Pakistan
(Late) MR. ZAHIDHUSSAIN (10-06-1948 TO 19-07-1953)
(Late) MR. ABDULQADIR (20-07-1953 TO19-07-1960)
(Late) MR. S.A.HASNIE (20-07-1960 TO19-07-1967)
(Late) MR.MAHBUBUR RASCHID(20-07-1967 TO 01-07-1971)
MR. S.U. DURRANI(01-07-1971 TO22-12-1971)
MR. GHULAMISHAQ KHAN(22-12-1971 TO30-11-1975)
(Late) MR. S. OSMANALI (01-12-1975 TO 01-07-1978)
MR. A.G.N. KAZI(15-07-1978 TO09-07-1986)
MR. V.A. JAFAREY(10-07-1986 TO16-08-1988)
MR. I.A. HANFIFIRST TERM(17-08-1988 TO 02-
MR. KASSIMPAREKH (05-09-1989 TO
DR. MUHAMMADYAQUB (25-07-1993 TO
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09-1989) SECOND TERM(01-09-1990 TO 30-06-1993)
30-08-1990) 25-11-1999)
Dr. Ishrat Husain (02-12-1999 TO 01-12-2005)
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State Bank of Pakistan
Central Board of directors
1.
Dr. Shamshad Akhtar
chairperson
2.
Dr. Waqar Masood Khan
member
3.
Mr. Abdur Razaq Dawood
member
4.
Mr. Mohsin Aziz
member
5.
Mr. Kamran Y. Mirza
member
6.
Mr. Iftahar A. Allahwala
member
7.
Mr. Zafar A. Khan
member
8.
Dr. Muhammad Ali Jogazai
member
9.
Mr. Tariq Sayeed Saigol
member
10.
Mr. Aftab Mustafa Khan
Corporate Secretary
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CORE FUNCTIONS OF STATE BANK OF PAKISTAN
The business and functions of State Bank of Pakistan are governed by State Bank of Pakistan Act, 1956 and Banking Company’s Ordinance 1962. The Bank in order to discharge its duties successfully operates through two separate departments
• Issue department • Banking department
The issue department deals with the issue of notes in the country. The banking department is concerned with the carrying on and transacting banking business. The functions of the state bank of Pakistan are now explained in brief. Regulation of liquidity: Being the Central Bank of the country, State Bank of Pakistan has been entrusted with the responsibility to formulate and conduct monetary and credit policy in a manner consistent with the Government’s targets for growth and inflation and the recommendations of the Monetary and Fiscal Policies Co-ordination Board with respect to macro-economic policy objectives. The basic objective underlying its functions is two-fold i.e. the maintenance of monetary stability, thereby leading towards the stability in the domestic prices, as well as the promotion of economic growth. To regulate the volume and the direction of flow of credit to different uses and sectors, the Bank makes use of both direct and indirect instruments of monetary management. Until recently, the monetary and credit scenario was characterized by acute segmentation of credit markets with all the attendant distortions. Pakistan embarked upon a program of financial sector reforms in the late 1980s. A number of fundamental changes have since been made in the conduct of monetary management which essentially marked a departure from administrative controls and quantitative restrictions to market-based monetary management. A reserve money management programmed has been developed. In terms of the programmed, the intermediate target of M2 would be achieved by observing the desired path of reserve money - the operating target. While use in now being made of such indirect instruments of control as cash reserve ratio and liquidity ratio, the program’s reliance is mainly on open market operations. Ensuring the soundness of financial system: Regulation and supervision One of the fundamental responsibilities of the State Bank is regulation and supervision of the financial system to ensure its soundness and stability as well as to protect the interests of depositors. The rapid advancement in information technology, together with growing complexities of modern banking operations, has
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made the supervisory role more difficult and challenging. The institutional complexity is increasing, technical sophistication is improving and technical base of banking activities is expanding. All this requires the State Bank for endeavoring hard to keep pace with the fast-changing financial landscape of the country. Accordingly, the out dated inspection techniques have been replaced with the new ones to have better inspection and supervision of the financial institutions. The banking activities are now being monitored through a system of ‘off-site’ surveillance and ‘on-site’ inspection and supervision. Off-site surveillance is conducted by the State Bank through regular checking of various returns regularly received from the different banks. On other hand, on-site inspection is undertaken by the State Bank in the premises of the concerned banks when required. To deepen and broaden financial markets as also to diversify the sources of credit, a number of non-bank financial institutions (NBFIs) were allowed to increase substantially. The State Bank has also been charged with the responsibilities of regulating and supervising of such institutions. To regulate and supervise the activities of these institutions, a new Department namely, NBFIs Regulation and Supervision Department was set up. Moreover, in order to safeguard the interest of ultimate users of the financial services, and to ensure the viability of institutions providing these services, the State Bank has issued a comprehensive set of Prudential Regulations (for commercial banks) and Rules of Business (for NBFIs). The "Prudential Regulations" for banks, besides providing for credit and risk exposure limits, prescribe guide lines relating to classification of short-term and long-term loan facilities, set criteria for management, prohibit criminal use of banking channels for the purpose of money laundering and other unlawful activities, lay down rules for the payment of dividends, direct banks to refrain from window dressing and prohibit them to extend fresh loan to defaulters of old loans. The existing format of balance sheet and profit-and-loss account has been changed to conform to international standards, ensuring adequate transparency of operations. Revised capital requirements, envisaging minimum paid up capital of Rs.500 million have been enforced. Effective December, 1997, every bank was required to maintain capital and unencumbered general reserves equivalent to 8 per cent of its risk weighted assets. The "Rules of Business" for NBFIs became effective since the day NBFIs came under State Bank’s jurisdiction. As from January, 1997, modarbas and leasing companies, which are also specialized type of NBFIs, are being regulated/supervised by the Securities and Exchange Commission (SECP), rather than the State Bank of Pakistan. Exchange rate management and balance of payments One of the major responsibilities of the State Bank is the maintenance of external value of the currency. In this regard, the Bank is required, among other measures taken by it, to regulate foreign exchange reserves of the country in line with the stipulations of the Foreign Exchange Act 1947. As an agent to the Government, the
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Bank has been authorized to purchase and sale gold, silver or approved foreign exchange and transactions of Special Drawing Rights with the International Monetary Fund under sub-sections 13(a) and 13(f) of Section 17 of the State Bank of Pakistan Act, 1956. The Bank is responsible to keep the exchange rate of the rupee at an appropriate level and prevent it from wide fluctuations in order to maintain competitiveness of our exports and maintain stability in the foreign exchange market. To achieve the objective, various exchange policies have been adopted from time to time keeping in view the prevailing circumstances. Pak-rupee remained linked to Pound Sterling till September, 1971 and subsequently to U.S. Dollar. However, it was decided to adopt the managed floating exchange rate system w.e.f. January 8, 1982 under which the value of the rupee was determined on daily basis, with reference to a basket of currencies of Pakistan’s major trading partners and competitors. Adjustments were made in its value as and when the circumstances so warranted. During the course of time, an important development took place when Pakistan accepted obligations of Article-VIII, Section 2, 3 and 4 of the IMF Articles of Agreement, thereby making the Pak-rupee convertible for current international transactions with effect from July 1, 1994. After nuclear detonation by Pakistan in 1998, a two-tier exchange rate system was introduced w.e.f. 22nd July 1998, with a view to reduce the pressure on official reserves and prevent the economy to some extent from adverse implications of sanctions imposed on Pakistan. However, effective 19th May 1999, the exchange rate has been unified, with the introduction of market-based floating exchange rate system, under which the exchange rate is determined by the demand and supply positions in the foreign exchange market. The surrender requirement of foreign exchange receipts on account of exports and services, previously required to be made to State Bank through authorized dealers, has now been done away with and the commercial banks and other authorized dealers have been made free to hold and undertake transaction in foreign currencies. As the custodian of country’s external reserves, the State Bank is also responsible for the management of the foreign exchange reserves. The task is being performed by an Investment Committee which, after taking into consideration the overall level of reserves, maturities and payment obligations, takes decision to make investment of surplus funds in such a manner that ensures liquidity of funds as well as maximizes the earnings. These reserves are also being used for intervention in the foreign exchange market. For this purpose, a Foreign Exchange Dealing Room has been set up at the Central Directorate of State Bank of Pakistan and services of a ‘Foreign Expert’ have been acquired. Developmental Role Of State Bank: The responsibility of a Central Bank in a developing country goes well beyond the regulatory duties of managing the monetary policy in order to achieve the macro-economic goals. This role covers not only the development of important components of monetary and capital markets but also to assist the process of economic growth and promote the fuller utilization of a country’s resources.
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Ever since its establishment, the State Bank of Pakistan, besides discharging its traditional functions of regulating money and credit, has played an active developmental role to promote the realization of macro-economic goals. The explicit recognition of the promotional role of the Central Bank evidently stems from a desire to re-orientate all policies towards the goal of rapid economic growth. Accordingly, the orthodox central banking functions have been combined by the State Bank with a well-recognized developmental role. The scope of Bank’s operations has been widened considerably by including the economic growth objective in its statute under the State Bank of Pakistan Act 1956. The Bank’s participation in the development process has been in the form of rehabilitation of banking system in Pakistan, development of new financial institutions and debt instruments in order to promote financial intermediation, establishment of Development Financial Institutions (DFIs), directing the use of credit according to selected development priorities, providing subsidized credit, and development of the capital market. State Bank as a Bank of Issue: The State Bank has the sole right to issue notes except one rupee note and subsidiary coins which are issued by the Government. The Bank adopted the proportional reserve System for the issue of notes unto December, 1965. The level of currency backing by gold bullion, foreign securities is now fixed at Rs. 1200 million through an Ordinance in December, 1965. This system of note issue is known as Minimum Reserve System, the size of notes issue affects the public demand and is adjusted according to the general level of prices and economic activity in the country. The assets of the Issue Department are always equal to liabilities. Banker to the Government: The State Bank of Pakistan acts as a banker to the Government. All the cash balances of the Central and provincial governments are deposited with the State Bank and the Bank does not pay interest on them. In return, the Bank administers exchange control on behalf of the Government. It carries out exchange, remittances and other banking operations including the management of public debt. The Bank also floats new loans on behalf of the Central and provincial governments. Banker’s Bank: The State Bank of Pakistan acts as a custodian of the cash reserves of the commercial bank s in Pakistan at least 3.5% balance of the total demand and time liabilities, The Bank from these cash balances settles debts which emerge between the banks themselves as a result of the daily clearing of cheques. It also replenishes the commercial banks stocks of cash when they are running low. The Bank by acting as a banker to the commercial banks thus exercises a considerable measure of control over them.
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State Bank as a Clearing House: The State of Pakistan acts as a clearing house for the commercial banks. A clearing house is a place where the representatives of commercial banks meet each day to exchange cheques drawn on each other and then settle the differences owed to each other. State Bank thus helps the commercial banks in making millions of payments bony a minimum of transactions. Adviser to Government: The State Bank also acts as financial adviser to the Government. Since the Bank is deeply involved in the money and foreign exchange markets tenders advice on financial and economic matters to the government. It also provides advice to commercial banks and other financial institutions and to commerce and industry in general. Since the State Bank has a direct link with international bodies like IMR, IBRD etc, it prepares and issues, forecasts on matters concerning the balance of payments strength of rupee and other general international financial developments. State Bank as a lender of Last resort: The State Bank of Pakistan is the lender of last resort t for the commercial banks. If, at any time, the commercial banks are short of cash reserves due to large debt balances in the inter_bank clearing or meeting the seasonal demand for cash etc, the Bank comes to their rescue. It provides cash to the commercial banks by rediscounting bills of exchange, treasury bills and other r gilt edged securities. The state bank thus helps and maintains liquidity and solvency of the commercial banks. State Bank as a Controller of Credit: The state bank has wide powers to use the instruments of credit control for influencing the aggregate spending, the inflation rate and the balance of payments in the country; the state bank uses the tools of open market operation, discount rate and the percentage Reserve Requirements to affect the supply of money in accordance with the Government Policy. It also uses the other minor tools such as Issuing directives to restrict bank advances. Varying margin requirement for certain bank advances for regulating credit in the country. State Bank and Economic Growth: The state bank is playing a significant role in facilitation and fostering economic development and growth of the banking system and other financial institutions in the country. The main development promotional activities of the bank are as follows: The development of the capital market in the country owes a great deal to the efforts made by the state bank. Under the state bank’s Exporters at the concessional rate.
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The state bank has helped in the establishment of specialized credit institutions for meeting the medium and long term credit needs of the various sectors of the economy. These institutions include IDBP< ADBP< NIT<EFP (Equity Participation Funk) NDFC< HBFc, Bankers Equity Limited, Pakistan Industrial Credit and Investment Corporation, Small Business Finance Corporation.
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ROLE OF STATE BANK IN THE ECONOMIC DEVELOPMENT OF PAKISTAN The state bank of Pakistan was established on July 1, 1948. Its role as state bank order 1948 was to regulate the issue of bank notes and keep reserves with a view to seed monetary stability in the country. This order of 1948 was substituted by the state bank of Pakistan Act 1956, which requires the 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 stability and full utilization of the country’s predictive resources”. According to this Act, the SBP is required to perform not only its usual functions but also is entrusted with the prosperity, stability and growth of the domestic economy. In the light of this Act, the functions of SBP are of two types:
• General Banking Functions • Promotional and Developmental Function
These functions are now discussed in brief; General banking functions: The general banking functions of SBP are :
• Issuing of notes • Acting as banker to the government • Banker’s bank • Acting as controller of credit • Maintenance of exchange rate • Working as clearing house for the commercial banks
Promotional and Development Functions: The SBP, besides performing its routine general functions, has taken a number of measures to promote economic development in the country. These developmental measures in brief are as under. Growth of commercial banks: At the time of partition, the number of offices of scheduled bank was barely 195. By June 1960, they increased to 430 and in the yea 2000, the number of domestic and foreign bank branches have increased to 7716. This commercial bank under the supervision and guidance of SBP are playing a prominent role in the mobilization of savings in rural and urban areas and disbursing credit for promoting development in the country. Development of money and capital market: At the establishment of Pakistan in 1947, the country had no capital market. The SBP played an important role in the development of money and capital market in
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the country. It now consists of wide range of institution from commercial banks to specialized financial institutions. The main constituents of the money and capital market are commercial banks, foreign banks, specialized banks, non-bank financial institution, stock exchanges, insurance companies and joint ventures with friendly Muslim countries. Assistance of specialized credit institution: The SBP is also providing assistance in the establishment of specialized credit institutions for extending medium and long term credit to the industrial sector. The main specialized credit institutions promoted are Industrial Development Bank of Pakistan (IDBP) National Investment Trust (NIT), Equity Participation Fund (EPF), Small Business Finance Corporation (SBFC), National Development Corporation (NDFC), and Federal Bank for Cooperatives (FBC). Provision for agriculture credit: Agriculture is the largest and most vital sector of the economy of Pakistan. For increasing its production and productivity the SBP is performing promotional role which includes
• Assessment of financial requirements of agriculture as a whole • Determination of availability of credit • Coordination between different credit giving agencies • Keeping operational efficiency of credit institutions
The main agencies providing institutional credit to the agriculturists are
• ADBP (Agricultural Development Bank of Pakistan) • Commercial banks • Cooperatives and • Government Taccavi loans
The SBP has not confined its role only as promotional but has helped in providing funds in a big way to the above institutions. Export Finance Scheme: The SBP has introduced Export Finance Scheme for the promotion of Exports in the country. It provides adequate bank credit on selected items of exports on concessioanl terms. Scheme for Financing LMM: This scheme was introduced by the SBP in October 1972. Under this scheme, the concessionary credit is provided to encourage sale of locally manufactured machinery (LMM) to the domestic users as well as to foreign buyers. Banking reforms:
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The SBP has the powers, on a statutory basis, to regulate the banking system on sound footings. During 1960’s a number of malpractices were noticed in the bank sector. For instance, there was uneven distribution of credit in different sectors of the economy, the owners of commercial banks were using the savings of the people for financing in their own projectors, maximization of profits was the main objective of the bank by advances, gifts were given to the members of National Assembly to get undue benefit from them etc. the SBP took a number of steps to curb the malpractices in the banking sector. The flow of credit to less developed regions and to small borrowers was made obligatory. The NBP was asked to introduce a peoples credit scheme for financing small traders and businessmen, the maximum amount of loan to individual borrower was fixed at Rs. 50,000. The banks were prohibited from making any advances against shares to the directors. A National Credit Consultative Council (NCCC) was set up under the control of SBP for increasing involvement of commercial banks in agricultural credit, house finance and to small borrowers in trade and industry etc. Guidance and financial help in downsizing: The SBP is also providing guidance and fi8nanceal help to various public sector commercial banks and development financial institutions (DFI’s) in reducing the size of employees through the scheme of golden handshake. The right sizing of these institutions will fetch better return on privatization which is to be completed be 2003. Islamization of the economy: As a part of the government policy, the SBP prepared and implemented a programmed of Islamic modes of financing from July 1, 1985. All financing and loan operations of the banks conform to the Islamic system now. The nonblank financial institutions like the NIT, SBFC, BEL etc have also converted the entire investment operation on an interest free basis. Collection of statistics. The SBP collects and disseminates monetary and financial information. It publishes a weekly statement of the working off its issue and blanking department. The statement is very useful, since it reflects the conditions of the country’s money market, finance, banking etc. it also publishes Annual Report in which full details of the working of the economy and the banking sector are given. Training of personnel: The SBP prepared a comprehensive programmed for the trading of its staff. The commercial banks have also been persuaded by the SBP to start their own training programmers to help and fill in the deficiency of trained staff. Summing up, thestat3e Bank of Pakistan has emerged awes a strong force and its views command great respect in the financial sectors. The bank has stood fore the ideals of stability and sound finance in the country.
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AUTONOMY FOR STATE BANK OF PAKISTAN
Mr. Men Qurush, the Former Caretaker Prime Minister of Pakistan, raised the State Bank’s autonomy by amending the State Bank of Pakistan Act, 1956 through an Ordinance. The Ordinance of October 6, 1993, not only strengthens the independence of the State Bank of Pakistan, but also restores its legal powers. Autonomy here does not mean anarchy. Autonomy to bank means the liberty to think and act independently for sends management of liquidity in thaw economy. There is a controversy in monetary literature and political circles about the role of the central bank in a country. One view particularly of the politicians is that the central bank should be a “technical arm” or a “backroom office” of ministry of finance of the country. The ultimate authority in making economic decisions should rest with the democratic government. A representative government, they say, is more legal and patriotic to the country. Those who disagree with this view are of the opinion that a representative government has many pulls and pressures. A representative political government particularly in developing countries is forced to take hasty, short term economic decisions. These short term actions tend to drive up costs and prices. There is also instability in the internal and external value of the country’s currency. As such the central bank should have an independent thinking. It should be in a position to offer expert counsel with powers to implement it. Role of the State Bank and autonomy: The State Bank of Pakistan since its establishment in 1948 is performing central banking functions.
o It has the monopoly of note issue o Acts as fiscal agent for the government o Supervises the operations of commercial banks and holds their reserves o It is lender of last resort to commercial banks o Performs the functions of clearing house between the banks o Maintain the external value of the rupee o Controls credit according to the requirement of the economy o Carries out the economic policies of the government for promoting
economic development in the country
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Departments of State Bank of Pakistan
1. Agricultural Credit Department
2. Banking Inspection (On-Site) Department
3. Banking Policy & Regulations Department
4. Banking Surveillance Department
5. Business Support Services Department
6. Domestic Market & Monetary Management Department
7. Economic Analysis Department
8. Exchange Policy Department
9. External Relations Department
10. Finance Department
11. Financial Markets Strategy & Conduct Department
12. Financial Stability Department
13. General Counsel's Office
14. Human Resource Department
15. Information Systems & Technology Department
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16. Infrastructure / Housing Finance Department
17. Internal Audit & Compliance Department
18. International Markets & Investments Department
19. Islamic Banking Department
20. Monetary Policy Department
21. Museum & Art Gallery Department
22. NIBAF Karachi & Islamabad
23. Office of the Corporate Secretary
24. Off-site Supervision & Enforcement Department
25. Payment System Department
26. Research Department
27. Risk Management and Compliance Department.
28. Real Time Gross Settlement System (RTGS System)
29. Microfinance Department
30. Small and Medium Enterprises Department
31. Statistics and Data Warehouse Department
32. Strategic and Corporate Planning Department
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33. Training & Development Department
34. Treasury Operations (Back Office) Department
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Agricultural Credit Department Mission Statement: To mainstream the agriculture and rural finance sector in the country’s financial system as a commercially viable and attractive business line and to catalyze growth and activity in the sector through sector friendly policies. Vision Statement: To transform ACD into a professional and dynamic Rural Finance Support Department, fully equipped to play a leading role in development of a sound, stable and robust agriculture and rural finance sector in the Country. About the department: Agricultural Credit Department established under Section 8(3) of SBP Act 1956 and headed by a Director, is working within the overall charge of ED/Advisor on Development Finance. The Department is mainly responsible to meet credit needs of agriculture, being mainstay of Pakistan’s economy, generates nearly one fourth of the total out put and 42% of total employment and is a major source of foreign exchange earnings. The other functions of the department are as under:-
1. To operate as a focal point in SBP for all agriculture and rural finance policies, programs and projects.
2. To assess/estimate the credit needs of farm & non farm sector in rural areas.
3. To review the issues/challenges faced, developments taking place in
agriculture/ rural finance both in the country and elsewhere, develop an adequate knowledge/ information base for policy formulation, etc.
4. To formulate agree & rural finance policies in consultation with
stakeholders and to ensure adequate flow of institutional credit in rural areas.
5. To monitor growth and trends in agree/rural finance portfolio of banks &
financial institutions. 6. To collect periodical agri/rural finance data for analysis, policy formulation
and dissemination to general public.
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7. To advise Federal and Provincial Governments, Banks, Cooperative Banks & Agriculture Chambers on agri & rural finance issues.
8. To initiate and undertake information dissemination and awareness building
programs for farmers and special training programs for commercial banks.
9. To build SBP rural and agriculture finance capacity and. 10. To operate as Secretariat for Agriculture Credit Advisory Committee
(ACAC).
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Banking Inspection Department Banking Inspection Department (BID) is one of the core departments at SBP. Its mission is to strive for soundness & stability of the financial system and safeguard interest of stakeholders through proactive inspection, compatible with best international practices.
BID plays a pivotal role in meeting SBP’s main responsibility of supervising the financial institutions to maintain soundness of the system and protection of the interest of depositors, thereby ensuring public confidence in the system. In order to assess a financial institution, BID conducts regular on-site inspection of all scheduled banks inclusive of the foreign banks & DFIs. The present supervisory structure at the department is institution focused whereby concerned Desk In-charges (Senior Joint Directors, Joint Directors & Junior Joint Directors) have been assigned specific institutions for effective monitoring through on-site examination, off-site reports from Banking Supervision Department and various market reports.
The regular on-site inspection is conducted on the basis of CAMELS Framework. (Capital, Asset Quality, Management, Earnings, Liquidity, Sensitivity and System & Controls). CAMELS are an effective rating system for evaluating the soundness of financial institutions on a uniform basis and for identifying these institutions requiring special attention or concern. Here the focus of inspection is generally on risk assessment policies & procedures of the banks and control environment to keep attached risks within acceptable limits and compliance with laws, regulations and supervisory directives. In continuation of the inspection process, discussions are held with external auditors to review banks’ internal controls, compliance with legislation & prudential standards and adequacy of provisions. Here it would be important to mention that BID works in close coordination with Off-Site Surveillance Desk at Banking Supervision Department and other departments in SBP.
BID conducts the regular full scope examination of banks pursuant to an inspection schedule; however, flexibility exists in policy for frequency of inspections depending upon the need to maintain safety & soundness. CAMELS rating are criteria to determine the frequency of inspection of banks as weak institutions are given greater attention. Special investigations (targeted inspections) are also conducted as and when circumstances so warrant on the basis of complaints or market reports about specific institution. Examiners document their assessment of the overall risks posed by each bank in the inspection work papers and summarize their inspection findings in the form of inspection reports. In formulating this assessment, examiners consider all available sources of information including, but not limited to: findings, scope and regency of previous inspections, ongoing monitoring efforts of off site surveillance desks, information received through pre-inspection letters or other communications, regulatory reports and published financial information, reports of internal and external auditors.
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Beside the regular inspection report, BID also prepares statutory reports under Section 25-AA of the Banking Companies Ordinance 1962 for banks regarding written-off loans, mark-up and other dues, or financial relief through rescheduling & restructuring of loans, on yearly basis and is submitted to Federal Government. Additionally, BID also submits a Quarterly Report to Federal Government under section 40A of Banking Companies Ordinance 1962 giving shortcomings and violations on the part of banking company’s management. BID also conducts inspection of exchange houses under regulation No 32 formulated under Clause (ii) of subsection 3AA of Foreign Exchange Regulation Act 1947.
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Banking Surveillance Department Vision: To transform Banking Surveillance Department into a highly professional and dynamic department fully equipped to proactively and effectively supervise the banking system. Mission: To promote soundness and stability of the Banking System through proactive and effective supervision Introduction: Health of an economy depends on the degree of safety and stability of its banking and financial system. A sound, stable and robust banking and financial system is a pre-requisite for economic well being of a country and its populace. In Pakistan, ensuring the stability and soundness of the banking system is a statutory responsibility of State Bank of Pakistan. The banking supervision departments viz. Banking Policy and Regulations Department (BP&RD), Banking Surveillance Department (BSD), Off-Site Supervision and Enforcement Department (OSSED) and Banking Inspection Department (BID) have been assigned this important function to work jointly and severally to ensure the soundness of individual banks and of overall banking industry. The Banking Surveillance Department is responsible to supervise financial institutions in the country. The department ensures effective adherence to regulatory and supervisory policies, monitors risk profiles, evaluate operating performance of individual banks/DFIs and the industry as a whole while issuing guidelines for managing various types of risks. It also ensures that banks are adequately capitalized and have policies and systems in place to assess various risks. The department is also responsible for the implementation of the Basel II Accord in Pakistan. The function and activities of Credit Information Bureau (CIB) also falls within the domain of Banking Surveillance Department. The CIB collect credit data, under section 25A of the Banking Companies Ordinance 1962, maintain its database and disseminate credit information to financial institutions online to facilitate their credit appraisal process. The main objectives/key result areas of the Department are; - Main Objectives/Key Result Areas:
o To ensure effective regulatory and supervisory oversight of Banks and DFIs. o To assess and review, periodically, performance and future outlook of
banking system. o To monitor risk profiles of banks, to prescribe guidelines etc requiring banks
and DFIs to put in place adequate Risk Management Systems o Developing detailed understanding of New Basle Capital Accord.
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o To ensure compliance with Basel Core Principles of Banking Supervision. o To provide online collection & dissemination of credit related information
to financial institutions in order to facilitate their credit appraisal process.
Department Structure The Department has been continuously improving its operations so that it remains effective in the face of changing practices of the banking and financial system. To undertake above stated variety of functions, the Department has been structured into different divisions. A brief description of each is given hereunder: - Risk Management & Analysis Division (RMD) This Division is responsible for monitoring different risks faced/assumed by individual Banks/DFIs and prescribes policies/issues guidelines etc for managing/mitigating these risks. Inter alias it also monitors the capital adequacy of banks to ensure that the banks remain adequately capitalized. It also monitors operational risks and reviews of operational policies of commercial banks and lays down disclosure requirements and monitors compliance thereof. Basel Accord & Core Principales Division (BA&CPD) The primary objective of this division is to implement the Basel II Accord in the banking sector. This involves participating in capacity building of the banking industry to understand, adapt and implement the Basel Accord and then to also monitor compliance in this regard. The other objective is to ensure compliance with Basel Core principles of banking Supervision.. Banking Sector Assessment Studies Division (BSASD) This division is primarily responsible for reviewing and assessing, on periodical basis, the banking system performance and its future outlook. The division also conducts various stress testing exercises to assess the resilience of the banking sector to various shocks. Credit Information Bureau (CIB) The Credit Information Bureau collects and disseminates credit data from and to financial institutions to facilitate their credit appraisal process. It maintains database of all borrowers who avail credit facilities from financial institutions and provides online access to financial institutions to submit monthly credit data and to generate CIB reports. Coordination & Administration Unit (CAU) The primary objective of this division is to provide necessary support services to the Department’s staff and officers to facilitate them in effective and efficient discharge of assigned functions/ responsibilities. It coordinates with other departments and external organizations for timely provision of support services and technological assistance. It is also responsible for receipt/dispatch of correspondence and records
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of inward and outward mail, besides preparing a consolidated business plan for the department and its monitoring and follow up for effective implementation. The Division also coordinates on various training activities for imparting training to the staff/officers. While having an optimum correlation, the divisions are specialized in their work assignments. They are functionally interdependent and have certain degree of interaction with other supervisory departments namely BID, OSSED and BP&RD. This much coordination among supervisory departments attempts to ensure stable and efficient banking system.
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Business Support Services Department Vision: To be a dynamic, proactive and forward looking service provider capable of facilitating achievement of SBP’s strategic objectives through enhanced stakeholders’ satisfaction. Mission; To develop and sustain an integrated service support system through cross functional approach with a view to provide timely, reliable and efficient services to Bank’s stakeholders About the Department: Born out of a strategic reorientation of State Bank of Pakistan; under taken during September 2006, Business Support Services Department has been established as a consolidated platform for providing services to its stakeholders. The underlying objective of this consolidation is improved facilitation through proactive service delivery. In order to achieve these objectives, all the major service delivery components of Bank have been merged under the umbrella of BSSD. A picture of Division-wise primary objectives / functions are as under: 1. Employees Benefits Division 2. Services Division 3. Procurement Division 4. Property Management Division 5. Internal Monitoring Division 6. Learning Resource Centre
A. EMPLOYEES BENEFITS DIVISION
The Division facilitates all internal and external stakeholders promptly through following Units: 1. Payroll Unit 2. Advances Unit 3. Pension Unit 4. Fund Unit 5. Travel Service Unit 6. Corporate Service Unit.
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Disbursement of monthly salary, payment of educational expenses, payment of Pension retirement benefits, gratuity to serving / retied employees etc., management of staff loan, maintenance of PF/ GPF account of the subscribers, financing of life insurance policies against staff fund balances and gratuity to ex-employees are some of the key functions of the employees benefits Division.
B. SERVICES DIVISION:
The Division besides being responsible to prepare budget, formulate the Departmental Business and Business continuation plan, maintains leave record of the employees, manages the transport facility, central mail system, central archive, affairs of the female hostel and booking of huts etc. It also provides needed administrative services to the Department. It functions through the following units; 1. Leave Unit 2. Education Expenses Unit 3. Services Unit 4. Transport Management Unit 5. Central Mail Unit 6. Central Archive Unit.
C. PROCUREMENT DIVISION:
Works as centralized procurement hub for all categories of assets for SBP and SBP BSC. Is responsible to oversee procurement as per PPRA Rules 2004 adopted by SBP. Apart from providing services of procurement of electronic data processing (EDP) equipment, motor vehicles, furniture fixtures, the Division also oversees the job of their repair, maintenance and insurance where required. It has the following five units; 1. Policy & Coordination Unit 2. Assets Unit 3. EDP/IT Unit 4. Services Unit 5. Works Unit D. PROPERTY MANAGEMENT DIVISION Leasing, disposal and insurance of SBP properties together with development and implementation of relevant guidelines in line with decision of building sub committee of SBP Central Board are the major functions of this Division. The Division also undertakes re-evaluation of SBP property examines leases and rent agreements and identifies impact of sale/rent of SBP property. E. LEARNING RESOURCE CENTRE Learning Resource Centre has been established with the aim of providing facility of learning and capacity building to its internal and external stake holder’s. This
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division facilitates and provides logistic support in the organization of seminar, trainings sessions and other special events. F. INTERNAL MONITORING DIVISION Internal monitoring division focus on pre/ post audits of all cases involving financial transactions requiring the approval of the competent authority. It plays the role of coordinator between all the Divisions/Units of BSSD and the IA&CD, Commercial Audit and any other Auditor determined by Finance Department for the purpose.
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Domestic Market & Monetary Management Department
Mission: Our mission is to proactive, professional and effective management of foreign exchange & debt markets to contribute towards accomplishment of SBP’s mission to set DMMD as a performance benchmark for other departments of SBP. Introduction: Domestic Market & Monetary Management Department is a newly constituted department of State Bank of Pakistan. The idea of constitution of this department was to combine FX and money market activities under one roof, hence Securities department taking care of money market activities and Dealing room taking care of FX market activities were merged together on February 17, 2000. Main Objectives 1. Monetary Operations. 2. Raising short term and long-term domestic debts for the Government. 3. Management of Government Debts 4. Providing funds to the financial institutions as lender of last resort. 5. Monitoring of money and FX market activities. 6. Intervention in the FX market. 7. Reserve Management. Organization: 1. Local Foreign Exchange (FX) Division. 2. Local Money Market (MM) Division. 3. In house Reserve Management Division. 4. Outsourcing Reserve Management Division. 5. Government Securities Division. 6. Debt Management Division. 7. General Division Functions of DMMD The Primary functions of Domestic Market & Monetary Management Department fall into the following categories.
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1. Exchange Rate Policy Management. • Stable Exchange rates and Forward Premiums at appropriate/ sustainable levels • Sale & Purchase of third currencies at optimum prices • Smooth & sufficiently liquid Foreign Exchange Market • Optimal accumulation of Foreign Exchange Reserves and Forward Portfolio 2. Monetary Policy Implementation.
• Maintenance of stable interest rates in inter-bank money market through proactive management of Money Market liquidity.
• Raising short-term government debt and developing yield curve through auction of Market treasury bills.
• Proactive management of Money Market Liquidity through Open Market Operations.
• Providing liquidity to the market through SBP 3 days report facility. 3. Reserve Management. Optimal utilization of Reserve Portfolio and maximum returns on investment of surplus reserves. Hiring of investment consultant & Fund Managers for optimizing returns. 4. Debt Management:
a) Domestic Debt
• Developing the markets for government securities. • Coordination with monetary and Fiscal Policies. • Raising short term and long term domestic debt for the government. • Data base management of permanent and floating debts.
b) External Debt
• Monitoring and ensuring prompt payment of external debt installments through State Bank of Pakistan and commercial banks.
• Management of FEBC, DBC, FCBC (3 & 5 yrs), Special US Dollar Bonds etc., through formulation and interpretation of rules and regulations governing these securities to ensure smooth functioning of the system.
• To generate reports on external debt, connectivity of Debt Management and Financial Analysis System (DMFAS) have been established between Eco. Affairs Division and SBP.
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Economic Analysis Department
The Department came into being in September 2006 when the task of economic surveillance was separated from the then existing Research Department as a part of comprehensive reorganization of the central bank. The role of the new Department was to monitor developments on macroeconomic issues and provide input for economic policy formulation through its analytical reviews and research work. Clearly, superior analysis of economic policies would be reflected in sounder macroeconomic management by the central bank and, in turn, the evolving structure of monetary and financial system would be more stable, and resilient against internal and external shocks. Key Functions: The key functions of the Department include: • To write SBP’s Annual and Quarterly Reports on state of the economy, in accordance with the statutory provisions of the State bank of Pakistan Act, 1956. There are three quarterly reports and one annual report during a business year. These reports help in developing a better public understanding of the interaction between monetary and other macroeconomic policies and their impact on the overall growth of the economy. • To put out monthly Inflation Monitor that contains detailed analytical charts and tables on prices (both in domestic and global markets). The objective of this document is to create awareness about the inflation process so that the general public is able to form an independent outlook for the emerging price situation. • To maintain and provide reliable, consistent and up-to-date information on major macroeconomic variables to the senior management. • To contribute in the empirical research for the SBP. Organizational Structure The Department has four Divisions with the following brief description of the functions: 1. Real Sector Division The Division is responsible for analyzing developments in the agriculture, industry, and services sectors. This Division also regularly monitors trends in savings and investment, and their impact on overall economy.
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2. External Division This Division analyzes developments and policy changes in the external sector, exploring their linkages with economic growth and other macro variables. In particular, this Division monitors trends in balance of payments position, foreign trade, external debt, exchange rate and foreign exchange reserves. 3. Monetary and Fiscal Division This Division assesses the developments taking place in monetary, financial and fiscal sectors, along with their linkages with economic growth. Further, this Division analyzes federal, provincial and consolidated budget and consolidates the domestic debt of Pakistan administered by the State Bank of Pakistan and CDNS. 4. Prices and Socioeconomic Division This Division is responsible for analyzing price trends both in domestic and global markets. This Division also evaluates macroeconomic, structural and social policies, and their impact on economic growth and human development in the country.
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Exchange Policy Department Mission: ‘Formulation and Implementation of Prudent Foreign Exchange Policies and Providing the Best Service to the Stakeholders so as to Play Proactive Role in Achievement of Overall Mission of the State Bank.’ Functions: Exchange Policy Department (EPD), one of the core departments of the State Bank is responsible for overall stability of the foreign exchange market and is engaged in the process of policy formulation and implementation. It reviews on continuous basis, the existing rules and regulations, to facilitate foreign exchange activities in the country. Foreign exchange business in Pakistan is governed / regulated under Foreign Exchange Regulations Act, 1947 (FERA, 1947). Foreign Exchange Manual outlines the rules and regulations governing foreign exchange business in the country for the guidance of Authorized Dealers (ADs), Exchange Companies (ECs) and general public including local/foreign investors as well as other stakeholders. The changes in instructions/policies/procedures are brought through F.E. Circulars/Circular letters. EPD lays down policy measures in consultations with relevant Government departments, Ministries, various trade bodies, chambers and other stakeholders. Exchange Policy Department is structured into three divisions namely: 1. Policy 2. Investment 3. Exchange Companies A brief overview of each division’s objectives / functions is as under: Policy Division: Policy Division is responsible primarily for dealing with policy matters in the areas of export/ import transactions, issuance of Authorized Dealer’s licence, Foreign Exchange Exposure Limits, Foreign Currency Accounts Scheme, Exchange Risk Cover Fee on Medium & Long Term Loans, analysis of proposals for raising loans / financial obligation by public sector organizations from international donor agencies, management of exchange allocations for public sector enterprises, travel, insurance, compliance / enforcement of inspection report findings of Authorized Dealers (banks) regarding foreign exchange and other allied matters etc. This division maintains contacts with all relevant institutions and stakeholders.
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Investment Division: This division primarily facilitates implementation and compliance of policy of the Government for investments in Pakistan and abroad. This is carried out by offering feedback on matters of varied natures, reviewing and updating of investment related policies and activities and operational management while executing transactions in the areas covering Investment abroad by residents, registration of foreign equity, royalty and technical Assistance, Independent Power Projects (IPPs), Foreign private debt including prepayment of private non-guaranteed debt, Oil & Gas payments, Profit remittance by foreign banks and branches of foreign companies, IT related payments etc. Exchange Companies Division: Policy formulation for establishing Exchange Companies (ECs) and ensuring adequate framework for licensing, operating, effective supervision & monitoring thereof are the prime responsibilities of Exchange Companies Division. These activities are carried out in close coordination with other the Field Offices of SBP-BSC and concerned government functionaries etc. It also organizes training and development activities for the respective financial institutions and concerned bodies.
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Finance Department SBP Functions of the Department:- Maintenance of books of accounts and preparation of financial statements of the Bank in accordance with the IAS, as adopted by the Bank.. Coordination and facilitation for Business planning and budgeting function in the Bank and periodic reporting to the management and to the Board. Management of Federal, Provincial, and District Governments Accounts. Policy & operations related coordination with MOF, CBR, AGPR, and other Govt. agencies. Maintenance of foreign currency accounts/ investments and execution of International payments and receipts. Maintenance of accounts relating to International Organizations and Donor Agencies like IMF, IBRD, ADB, Asian Clearing Union (ACU) etc. Currency issuance and its overall management. Functions Performed By Divisions:- The Finance Department is responsible to perform and manage the functions detailed on pre-page. It controls the working of the Offices under the provisions of Issue and Banking Department Manuals. Issue Department deals with management of currency operations, which includes designing, printing of currency notes and its circulation. Banking Department relates to the operation of offices of the Bank, maintenance of Federal and Provincial Government Accounts, booking of financial transactions in the books of accounts of Central Directorate and issue of weekly Statement of Affairs as required under the provisions of SBP Act, 1956, preparation of Profit and Loss Account and Balance Sheet on yearly basis, formulation of budget estimates of revenue and capital expenditure. Management of General Provident Fund and Provident Fund balances of all employees of the Bank. Operational control of working of offices by framing policies and procedures under the provisions of Banking/Issue Department Manuals, Sale/ purchase of foreign currencies, maintenance of foreign reserves of the country. To achieve the above objectives, the Department has been divided into seven divisions as detailed below: Financial Accounts Division (FAD) Financial Accounts Division performs the following functions:
o Preparation of Annual Financial Statements Accounting Policies for the bank.
o Preparation of Weekly Statement of Affairs for issuance in the Government Gazette as
o Provided in the State Bank of Pakistan Act, 1956. o Quarterly profit updates to the Central Board of Directors. o Maintenance of GL to provide information for informed decision-making.
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o Monitoring of contraction and expansion of Currency operations o Consolidation of Departmental Budgets o Maintenance of Federal & Provincial Government Account on the basis of
receipt and o payments effected at our Field Offices and National Bank of Pakistan. o Preparation of daily balance position and communication thereof to the
Federal Finance o Division and Provincial Finance Departments. o Creation or retirement of MTBs according to the “Daily Balance Position”
of Federal Government.
Forex, Securities & Investment Division (FSID)
o Maintenance and recording of Cash Reserve Requirement, SCR Requirements, MCR, foreign debt payments, FE-2 deposits etc.
o FCY payments of Govt of Pakistan (Defense, Privatization Commission, TCP etc.) and SBP.
o Short/Medium term investment and Swap deposits and maintenance of Foreign Currency
o Accounts and revaluation of Foreign Currency Assets & Liabilities. o Special US Dollar Government Bonds. Payment of Profit and principal
payment on o redemption. o Purchase, repurchase, acquisition of SDR, and revaluation of IMF Loans/
facilities. o Payments to executing agencies/ parties under various Loans/Grants of
International Donor agencies viz. IBRD/ IDA/ ADB etc. o Transactions of Sale/ Purchase of Currencies & Settlement of ACU Account
under ACU Arrangement. o Transactions of the Foreign Funded Projects including TABS etc. o Central Bank Deposits; rollover; & remittances of the interest. o SBP’s investment in share capital of the banks/DFIs. o Monthly Abstract, Daily Reserves and Weekly review reporting.
Systems and Procedure Division (SPD) Systems & Procedures Division (SPD) acts as a liaison between functional users & ISTD to ensure effective systems development, implementation, and usage. Major responsibilities are:
o Representation of Finance Department, SBP, in various automation projects under
development / implementation (RTGS & Data Ware House). o Recommend continuous business process refinement in coordination with
business units of Finance Department SBP and SBP BSC. o Participate in automated solutions development / configuration for SBP in
financial areas
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Payment Controller Division (PCD) This Division is responsible for:
o Making of payments to external suppliers and employees of the Bank after independent verification of transaction documents on the basis of bills/ invoices/claims approved by the processing units.
o Checking and verifying the selected financial transactions/cases referred by the Director Finance to ensure accuracy and compliance to respective rules and regulations.
Asset Management Division (AMD) Assets Management division is responsible for:
• Assets capitalization, assets transfers and overall responsibility to manage and maintain assets physical inventory, keeping track of physical location of assets.
• Maintaining the financial information of the assets, cost evaluation and retirements/ disposal.
• To ensure the smooth and unhampered running of the Fixed Assets
Management function. • To record all the expenses regarding repair/ maintenance and rent taxes for
SBP buildings and equipments. Currency Management Division (CMD) Currency Management Division is responsible for:
• Policy making and management of Currency related matters, which include designing,
• printing and issuance of Bank notes. • Issuance of Statements of Affairs of Issue Department on Weekly, Monthly
and Quarterly Basis. • Preparation of Balance Sheet of Issue Department at every financial year-
end. Support Services Division Support Services Division performs the function as follow:
• To deal with various administrative matters arising in the Finance Department
• To provide a healthy and sound environment to officers of Finance Department.
• To respond to various queries raised from various internal and external sources.
• Dissemination of any revision in laws, policy and regulation matters to relevant quarters.
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Financial Markets Strategy & Conduct Department (FSCD)
Objectives:- Financial Markets Strategy & Conduct Department is one of the three new Departments constituted on restructuring of Exchange and Debt Management Department (EDMD) and Investment Services Cell (ISC) on September 14, 2006. The Department is responsible to formulate Policies & Regulate conduct of Domestic Money, Exchange, Securities, and Derivatives Markets as well as to disseminate market data/analysis and to set-up strategies/ products for market development. Functions:- To fulfill above, the Department has been divided into three Divisions, each Division is sub-divided into different units. A brief description of each division is given as under: -
Markets Policy & Regulations (MPRD)::-
• Review & formulate Market related Policies/Regulations vis-à-vis FEEL, CRR/SLR, Dealers Code of Conduct, Public Debt Act, Market Settlement Issues, PD System, Interbank Brokerage monitoring etc.
• Secretariat for the Derivatives Approval & Review Team (DART). • Review & coordinating with BID/BSD on enforcement of Treasury
specific inspection comments vis-à-vis existing regulations governing FX, Derivatives & Debt Markets.
• Policy issues pertaining to FEBC, DBC, FCBC, SUDB etc. • Coordination with relevant Market Associations, Committees & Players
e.g., FMAP, PBA Sub-Committee on Treasury & Capital Markets, etc. Market Analysis & Forecasting (MAFD):-
• Exchange Rate & FX Market Analysis • Analysis of Money and Debt Markets • Derivatives market analysis. • Preparation of monthly market update/ Quarterly FM Review. • Liquidity Forecasting & Data base Management of Permanent &
Floating Debts • Assist in formulation of Sovereign Domestic Debt plan.
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• External Debt maturity Profile. Market & Product Development Strategies (MPDS):-
• Product development initiatives for Sovereign Debt instruments. Derivatives products/strips, Islamic Instruments etc.
• Market Development projects like…Listing of GOP Securities. Automated Auction/Payment System. IFSB Standards & Islamic market Development. Market Systemic Issues and Market Benchmarks.
• Market Publications. • Secretariat of EDIT & DMCT meetings. • FX/MM Derivatives Market Analysis for MPC.
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Legal Services Department
Vision:
To transform the legal services division into a strong, effective, integrated and centralized division of the state bank fully equipped with competent professionals, up -to- date law bookstand advance-technology to play a meaningful role in the development of legal culture and establishment of the rule of law in state bank of Pakistan. Mission statement: our mission is to promote justice, equality, and legal culture in the state bank of Pakistan with the commitment to provide professionally meaningful effective and quality advice to make state bank of Pakistan legally a strong and dynamic institution. LSD’s CHARTER LSD is committed to provide quality and timely legal service to all other departments /stake holders of the State Bank. With limited resources at its disposal, LSD is thriving to achieve different goals with excellence.
• Personal and Professional Integrity. • Trust and Sense of Responsibility. • Team Work and open Communication. • Honest and Candid Feedback. • Serving the Clients with Courtesy, Respect and Competence. • To attend to urgent legal issues immediately. • To provide sound legal advice within unbelievably a short time. • To draft principal and subsidiary legislation which are consistent with
written laws and are in accordance with the customer department’s policies, requirements and deadlines. • To conduct negotiation of legal issues with the stakeholder in a competent
and professional manner.
• To provide efficient and cost effective litigation service. • To maintain the highest standard of quality in providing legal services to customer departments. /stake holders. • To protect and maintain confidentiality of information of customer
department and of the Bank. • To be available to the legal needs of customer departments/stakeholders.
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• To update client departments of the latest amendments/developments • particularly in the field of banking laws, while rendering legal advise
/opinion. Re-Structured Legal Services Division. BACK GROUND Realizing the importance of sound Legal Department in a Central Bank, the Honorable Governor, has taken an initiative to take appropriate measures to improve the efficiency of LSD and in house legal advise in line with other Central Banks of the world. In order to achieve this object, a team of legal specialist from Bank Negara Malaysia was invited by the Governor, Dr.Ishrat Hussain as part of the Technical Training Arrangements between Malaysia and Pakistan. NEW STRUCTURE Under the new structure, LSD is headed by the Chief Legal Adviser (CLA) Mr. Justice Mamoon Kazi, who is an Ex-Chief Justice of the Sindh High Court and a retired Judge of the Supreme Court of Pakistan. His experience in Legal Matters spreads over forty-five (45) years. The CLA is assisted by a Legal Adviser, three Assistant Legal Advisers and four Law Officers. All are practicing lawyers in the high court and have a sound background of Banking Laws, Corporate laws, Mercantile law and Central Bank issues. They have been recruited on a special salary structure approved for professionals in March 2003 by the SBP Board. The administrative side has the legal amendments section, which is responsible for incorporating amendments into the existing legislation, Statute and Law journals. There is a separate Legal Library containing more than 6000 (Six Thousands) Law Books and Monthly Journals which includes editions related to new emerging issues. The Legal library is being managed by an experienced and qualified Librarian. To enhance the knowledge of legal professionals and to improve quality of opinion/advise, LSD has recently subscribed to comprehensive website / law library i.e. pakistanlawsite.com. This is a stop resource site for Federal/ Provincial Statues, Rules and Cases relating to Central Bank and its allied issues. In addition to that Comprehensive training programme is being organized in Collaboration with Training Division of HRD for specialized training relating to the new emerging issues faced by the central bank. Among others, one of the responsibilities entrusted to LSD is to monitor all legally related issues of SBP and its subsidiaries namely Banking Services Corporation (BSC) and NIBAF. That also includes hiring of suitable counsel to safeguard the interest of the Bank in the court of Law considering the importance of the case and to take appropriate measures to effectively defend the cases. With enough work force / human resource at its disposal in future, LSD is planning to have separate legal drafting and Research Section whose work will be to examine Existing Laws, Rules, Regulations and to propose amendments keeping in view the policies of the central bank and the new emerging technical issues to be referred to
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the Banking Law Commission / Finance Division.
THE FUTURE GOALS OF LEGAL SERVICES DIVISION
• To establish Awareness of Law in the State Bank. • To identify legal shortcomings and lacunae in matter of policies
effecting employees at large, and providing effective solutions thereof, as and when these policies are referred to the Legal Services Division for comments.
• To highlight the significance of providing true facts and full information i.e. a candid feedback and to gave appropriate legal solution/remedy to the problems.
• To lend full support legally and morally that may help in creating employer and employee’s friendly environment in the State Bank.
• To provide efficient and cost effective litigation by engaging suitable/experienced counsel to defend the interest of SBP.
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Human Resources Department Vision: To transform HR into a dynamic and leading department that is respected for its professionalism by its stakeholders. Mission: We are committed to excellence at acquiring, developing and retaining the right talent for SBP by: (i) Continuous innovation & improvement of the HR policies & procedures (ii) Providing effective facilitation and advisory services to line departments (iii) Efficient and timely delivery of HR services. Currently, Human Resources Department comprises of the following Divisions. 1. Compensation & Benefits Division 2. Employee Relations Division 3. HRIS Division 4. Performance Management Division 5. Planning & Development Division 6. Recruitment Division Brief functions of each Division are as under: 1. Compensation & Benefits Division The Compensation & Benefit Planning Unit is responsible to carry out all activities related to developing best market strategies regarding compensation and benefits for our employees. Employee motivation & retention unit works on conducting motivation surveys and developing market based employee satisfaction & retention strategies. 2. Employee Relations Division The Discipline & Litigation Unit deals with union matters, discipline issues & litigation processes. Further, the Employee Counseling Unit addresses employee grievances and counseling through behavior modification. 3. HRIS Division This Division focuses on Oracle Human Resource Information System and to solve the issues in smooth implementation and management of HRIS. The employees Database Unit is responsible for maintaining & updating employee data and HR
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Broadcast of various messages/ circulars/ orders etc. for prompt communication to Bank’s employees. The Service Record & Compliance Unit maintain and update employees’ personal files, verify employees’ particulars, and ensure timely confirmation of eligible employees in the Bank’s service. HR Automation unit works for customization of Oracle HRMS with merging needs of HR processes. 4. Performance Management Division The Performance & Reward Management Unit of this Division manages and implements PMS in the Bank, advice the annual merit increase, and facilitates the promotion process. The Career Development Unit caters to the manpower requirements of the Bank through internal transfer and posting, and to manage promotion process, seniority list of OG-2 & above officers of the Bank. The newly created Organizational Development Unit is a conscious effort to increase organizational efficiency through planned interventions. 5. Planning & Development Division This division looks after the department’s Budget & Business Planning process through its Budget Management & Administration Co-ordination Unit. The Manpower Planning Unit is also a part of this Division, which is responsible to develop annual manpower plan for SBP, prepare job descriptions, and conduct job evaluation process. Further, this division is also responsible for catering to the training needs of HRD officers in co-ordination with the Training & Development Department. 6. Recruitment Division This Division is responsible for attracting, selecting and recruiting the right people from the market. State Bank of Pakistan is proud of its highly professional, transparent and objective approach in its recruitment and selection processes. After applying the eligibility criteria, which depends on the Job grade, a series of selection procedures are applied before hiring employees. Normally the candidates go through the process of test, group discussion and interview. The Interview is conducted by a team of internal as well as external professionals of the related area. Sophisticated recruitment and selection tools like oracle based data management system; online application and behavioral based interviewing techniques have been introduced
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Information Systems & Technology Department Vision To implement latest technology to keep SBP online with the domestic and international financial industry, and other stakeholders in order to promote efficiency and stability in the financial market. Mission To provide appropriate technical solutions to business requirements and develop state of the art integrated systems that will facilitate internal and external stakeholders to acquire accurate information in the most efficient manner Introduction ISTD with its capabilities, methodologies, and experience aims at technological advancement in SBP, focusing on solutions that intend to reduce operating costs, improve end-user performance, and meet overall business goals. Success and competitiveness in today’s marketplace requires extra effort centered upon ISTD’s value to provide high-quality solutions and services, effective communication, and smooth 24/7 operations. ISTD provides services and solutions to improve and strengthen SBP’s technology portfolio and identify future requirements while catering to them as well. Besides providing these useful resources, ISTD focuses on safeguarding the information assets and relevant systems, critical to SBP, through its Security plans and policies. ISTD’s role is not limited to automation within SBP, but also enhances and facilitates the growth of technology and its impact on the operational development of the entire financial industry. ISTD Divisions 1. In-house Development i. Software development ii. Web development 2. Central Server i. System Admin – Unix ii. System Admin – Windows 3. Customer Support 4. Database Management
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5. Network Management 6. Production Support 7. Administration 8. Director Section
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Internal Audit & Compliance Department Mission To provide independent appraisal of all the activities of SBP aiming to add value, improve operational efficiency, risk management and internal control systems Vision To transform Audit Department into a modern, efficient, proactive and I.T oriented Department, fully capable to conduct independent audit of all activities of SBP, aiming to add value, improve operational efficiency, risk management and internal control system in line with international best practices, for accomplishment of Bank’s mission. Functions Internal Audit & Compliance Department Internal Audit & Compliance Department is performing three types of functions i.e. Financial & Operational Audit, IT Audit and Compliance. There are four divisions in the department: • Financial & Operational Audit Division • IT Audit Division • Compliance Division • Support Services Division Financial & Operational Audit Division This division is responsible to conduct risk based audit of 30 departments of the Bank, covering financial, operational and the aspects relating to Corporate Governance. Functions
• Examine and evaluate adequacy and effectiveness of the internal control systems in the Bank.
• Review the applications and effectiveness of risk management procedures and risk assessment methodologies in financial, operational and Corporate Governance aspects of the Bank’s activities.
• Review financial, automation technology and MIS. • Review and ensure accuracy and reliability of accounting records and
financial reports. • Perform testing of both transactions and functioning of specific internal
control procedures. • Evaluate and ensure that approved policies and procedures meet legal and
regulatory requirements.
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• Examine and evaluate effectiveness of existing policies, procedures and give recommendations for improvements.
• Identify opportunities for cost savings in Bank operations and make recommendations.
• Examining those resources are acquired economically, used efficiently and safeguarded adequately.
• Review various reports of Bank’s subsidiaries, recommend improvements and provide policy guidelines.
IT Audit Division This division is responsible to conduct examination of automation of various working areas of the Bank. Functions
o Ensure Security System Compliance on the policies & implementation of security put in place by I&STD.
o Evaluate / test IT controls and procedures of all IT systems and applications used in SBP.
o Conduct audit of RTGS, Swift, Unix System, E-mail & Internet System, E-CIB, Data Warehouse, Network System, IS&TD, Globes, Oracle ERP etc.
o Coordinate and provide support to Financial and Operational Audit Division to carry out IT Audit of all departments.
o Co-ordinate closely with SBP BSC I.T. Auditors and provide useful recommendations.
Compliance Division In order to keep the working of Audit Department aligned with the best international practices, a new division, captioned as 'Compliance Division', has been created in the Department during the recent Reorganization and Restructuring of SBP. With a view to have more emphasis and focus on the compliance, Audit Department has since been renamed as Internal Audit & Compliance Department. This division is responsible for monitoring compliance of various administrative / operative instructions, rules, and regulations by constantly reviewing and reporting status of compliance and non-compliance. Functions
o Study and emphasize compliance of best international practices in audit of various functions of SBP.
o Monitor compliance of Administrative/Operational Instructions, Rules, Regulations issued from time to time by the Management.
o Obtain a time bound action plan from the Audited Departments with regard to compliance of Audit recommendation, agreed upon.
o Review over the compliance carried out by the audited departments. o Prepare and put up a consolidated Report to the Governor regarding the
status of compliance and non-compliance of the recommendations agreed by the Departmental Management.
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o Monitor the functional reporting of IAD of SBP BSC, comprising of 18 Internal Audit Units located at 16 field offices, HO and NIBAF.
Support Services Division Services Unit is responsible for providing support to departmental employees relating to administration, personnel and logistics. Functions
o Prepare of Annual Business Plan and Budget. o Maintenance of Imperfect Account. o Schedule and arrange Departmental meetings o Maintain record of Audit Reports sent to Audited departments. o Maintenance / house-keeping of premises and equipment o Manage record of communications received in/sent from the Department. o Manage all matters regarding leave/PMS/reward recognition etc of the staff
of the Department o Send monthly/quarterly returns to the concerned quarters. o Manage logistics including stationary, computers and other consumables
and keep stock of Fixed Assets of the Department. o Liaise with the IAD of SBP-BSC in order to keep the track record of the
Reports and other records received from/sent to them.
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Islamic Banking Department
Vision Statement Our vision is to make Islamic banking the banking of first choice for the providers and users of financial services. Mission Statement To promote and develop Islamic Banking industry in line with best international practices, ensuring Shariah Compliance and transparency. Introduction Islamic Banking Department was established on 15th September, 2003 and has been entrusted with the huge task of promoting & developing the Shariah Compliant Islamic Banking as a parallel and compatible banking system in the country. Islamic Banking is one of the emerging field in global financial market, having tremendous potential and growing at a very fast pace all around the world. Al-Hamdulillah, the progress of Islamic Banking in Pakistan has also been commendable during the last three years. Currently there are six licensed full fledged Islamic Banks and twelve conventional banks with standalone Islamic Banking Branches with the total branch network of over 140 branches operating in twenty three cities of all the four provinces in the country as of 01.01.2007 and applications for few more players are under consideration. Islamic Banking is a high priority area for State Bank of Pakistan. Steps are being taken to make Islamic banking industry in Pakistan robust enough to offer a viable alternative to conventional banking, should the market decide that Pakistan should have an exclusively Islamic banking system in the country. State Bank of Pakistan wants to develop a progressive and sound Islamic banking system that is in line and compatible with the global financial sector, providing innovative Shariah compliant products and services so as to achieve equitable economic growth. One of the biggest challenges being faced by this growing industry is the dearth of professional Islamic Bankers and capacity building in this regard is one of the top most priorities for the promotion of Islamic Banking. In order to play our regulatory and supervisory role more efficiently we are working on the areas like Risk Management, Corporate Governance, Prudential Regulations, Accounting & Shariah Standards etc. regarding Islamic Banking Currently the Islamic Banking Department (IBD) consists of following four divisions:
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1. Policy Division 2. Shariah Compliance Division 3. Business Support Division 4.Shariah Board Secretariat 1. Policy Division: Objectives:
• Devise a vision and strategy paper and work for the promotion of the Islamic banking industry.
• Study the best international practices being applied in the field and work
upon their possible application in local market.
• To deal with legal, regulatory, taxation and accounting issues faced by IBIs.
• To steer the Task Force on R&D and deal with issues relating to Islamic economics.
2. Shariah Compliance Division: Objectives:
• To strengthen the supervisory aspect of Islamic banking industry through implementation of Shariah Compliance Inspection Manual.
• To analyze the financial data received from the banks and review the same.
• To coordinate with different departments in preparing various SBP
publications. • To develop new products for liquidity management and interbank market
• To liaison with international institutions involved in Islamic finance
3. Business Support Division: Objectives:
• To provide administrative support to the department.
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• To make arrangements for various meetings
• To make arrangements for the training and video conferences 4. Shariah Board Secretariat: Objectives:
• To arrange Shariah Board meetings, preparing agenda and minutes of the meetings and conduct due diligence of Shariah Advisors of IBIs.
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Monetary Policy Department Monetary Policy Department (MPD), one of the core departments of the State Bank, is responsible to provide candid feedback for monetary and exchange rate management and facilitates the Monetary Policy Committee (MPC) in monetary policy formulation and decision making process. The Department is primarily engaged in the following major activities which include::
o Preparation of Monetary Policy Statement; o Preparation of dossier/working papers for various Committees; ; o Making projections for future inflation and economic outlook using
Macroeconomic Model and Financial Programming Framework; o Preparation of Monetary Surveys; o Preparation of Annual Credit Plan; o Periodic analysis of monetary and credit developments; o Contribution to consultations with the IMF; o Appraisal of world economy and financial developments; and o Empirical research papers.
The Department has been divided into the following Divisions: : Monetary Survey Division The Division is responsible to provide information and objective analysis to the management for prudent policy decisions. The Division is also responsible for the preparation of weekly Monetary Surveys and its allied information; analysis of money & credit trends; identification of issues and concern; assessment of policy developments and provision of input to the internal & external stakeholders. The Division prepares Annual Credit Plan/working papers for NCCC meetings and serves as the NCCC secretariat. It also contributes in providing information and analysis to the MPC and the Monetary Policy Statement. Policy Formulation Division The Division provides intellectual, analytical and data support for monetary policy formulation and appraisal, and furnishes working papers and background material for the MPC, Monetary and Fiscal Policies Coordination Board (MFPCB), Economic Coordination Committee (ECC) and Investment Committee meetings, thereby contributing to the efficient conduct of monetary policy and macroeconomic management. The Division also contributes in the preparation of Monetary Policy Statement taking into account global and regional policy initiatives..
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Macro Modeling Division The Division has been assigned the responsibility to make predictive assessment regarding inflation and future outlook of the economy. The Division is engaged in the following prime activities.
o To make forecast for major economic indicators and to provide an independent assessment of the future outlook of the economy, Quarterly, and Annual Reports,
o To make forecast for major economic indicators on monthly basis as an input for policy decisions, and
o The quarterly updating of the medium-term forecast (current plus three years ahead) based on Financial Programming
Office of the Corporate Secretary Main role of the Office of the Corporate Secretary is to conduct Central Board meetings and to assist governor in the implementation of various policies in the Bank. In this capacity it is playing a pivotal role in the management and direction of the affairs and business of the Bank by conducting meetings of the central board very smoothly and consistently and conveying the decisions of the Board very efficiently and precisely to the management of the Bank. Office of the corporate secretary is secretariat for the Bank’s Central Board of Directors, and Management Team/ committees. The Corporate Secretary of the Office is the ex-office Secretary of the Board of Directors of both the SBP and SBP Banking Services Corporation as also the Corporate Management Team. The Office is responsible for recording and preservation of minutes of these high level policy making bodies. It also ensures compliance of the decisions of these meetings. The Office arranges official travels of Governor, Deputy Governors and other senior officials of the Bank, provides protocol to visiting dignitaries including representatives of World Bank, IMF and Governors of other Central Banks besides high-ranking Government officials. It is also a focal point for Government, National Assembly and Ministries’ queries. It also corresponds with the foreign central banks, international financial institutions and local banks in case of appointment and retirement of governor and deputy governor. Another important function of this office is to coordinate and oversee the special projects assigned by the governor from time to time.
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Off-site Supervision & Enforcement Department Mission Statement: Our Mission is “to promote soundness and stability of the Banking System through proactive off-site supervision and prompt enforcement actions”. Vision Statement: Our Vision is “to transform Off-Site Supervision & Enforcement Department into a highly professional and dynamic department fully equipped to proactively supervise banks and other financial institutions under purview of the SBP and initiate prompt enforcement actions. About the Department: Off-Site Supervision & Enforcement Department (OSED) is one of the newly created departments emerging in the wake of re-organization of former Banking Supervision Department under recent SBP restructuring. OSED is responsible for off-site supervision of the financial institutions coming under regulatory purview of the State Bank of Pakistan (SBP). The department also ensures effective enforcement of regulatory and supervisory policies, monitors risk profiles, evaluates operating performance of individual banks/DFIs and takes necessary enforcement actions against institutions for their non-compliance (with laws of the land and regulations put in place by the SBP) as identified by, the inspection teams of BID during their onsite examination, and/or by the supervisors of this department based on submitted returns, interaction with financial institutions and market information. Currently, over 50 financial institutions are supervised by the State Bank of Pakistan. These include banks, Development Finance Institutions (DFIs), and Microfinance Banks/institutions. Banks operating in the country include locally incorporated public and private sector banks and branches of foreign banks. The nature of business is becoming diversified overtime. To effectively discharge its functions, the department has prescribed returns of varied frequencies for regular submission by the financial institutions. Based on these returns, the department monitors risk profiles of individual institutions, evaluates their operating performance under CAELS/IRAF frameworks, and checks their compliance with the prescribed parameters (i.e. ratios, levels, etc) on quarterly basis. The CAELS is an off-site supervisory framework used for assigning banks, on quarterly basis, a composite rating on a scale of 1 (best) to 5 (worst) comprising of Capital (C), Asset Quality (A), Earning (E), Liquidity (L) and sensitivity to other Risk (S). Besides, the department has instituted an all-embracing technology driven
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Institutional Risk Assessment Framework (IRAF) for continuous monitoring of banks by integrating off-site assessment, on-site assessment, self-assessment by banks’ board of directors/ management, assessment by the external auditors and rating agencies and market information. The Department also monitors the Cash Reserve Requirement (CRR), and Statutory Liquidity Requirement (SLR) of the banks and DFIs on weekly basis and takes corrective measures and imposes penalty. Moreover, supervising officers at OSED examine the violations of institutions under its purview as contained in the inspection reports prepared by the BID inspection teams, and take necessary enforcement actions against concerned financial institutions including imposition of penalties, enforcement letters, signing MOUs, advising immediate compliance and submission of time bound action plans. Besides, the supervising officers keep close watch on the banks’ operating performance in the interim period between onsite examinations for any violation and takeover the issues/ violations with the concerned institutions. Further, a report, on the condition of banks inspected in a particular quarter, is prepared on quarterly basis and submitted to Ministry of Finance. In addition, the department facilitates other departments of SBP as and when required through provision of bank-related or consolidated information and coordinate on Reported Chart of Account (RCOA) with Data ware House project team for automation and rationalization of returns submitted to SBP. To achieve operational efficiency in the discharge of entrusted functions, the Department has been structured into divisions and units. Monitoring Division The Monitoring Division is responsible for monitoring Liquidity Risk through overseeing Cash Reserve Requirement (CRR), Statutory Liquidity Requirement (SLR), Weekly Statement of Position, and NPLs related matters. Key Result Areas of the Division are:
o Ensuring continuous monitoring of CRR, SLR and other related information to assess the level and trends of liquidity risk in the market
o Ensuring that Weekly Statement of Position of all banks / DFIs are timely received, consolidated and sent to relevant stakeholders.
o Ensuring timely imposition of penalty on default in maintenance of CRR/SLR, non/late submission of returns/ mis-reporting of data.
o Ensuring that NPLs of banks and DFIs are properly monitored and disseminated.
Supervision & Enforcement Division The main responsibilities of the four Supervision & Enforcement (S & E) Divisions include off-site risk assessment of banks’ on the basis of CAELS/ IRAF framework, early detection of problems through review of various information received directly
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from banks, interaction with banks’ management/ board of directors and review of market reports, taking enforcement actions for various violations identified by examiners during their onsite examination including imposition of penalties, dealing with requests for waiver of penalties and continuous follow-up for compliance by the concerned institutions. Supervisory staff in each division monitors a certain number of banks assigned to its division. Key Result Areas of these divisions include:
o Ensuring timely receipt of financial data from banks & DFIs and authorizing imposition of penalty on late submission or incomplete/incorrect data.
o Compiling financial data of banks and DFIs, analyzing it developing recommendations and finalizing off-site surveillance reports as well as IRAF ratings and circulating these to designated recipients.
o Reviewing Inspection Reports received from Banking Inspection Department (on-site), taking up the issues highlighted in the report with bank/ DFIs for their resolution/ compliance.
o Monitoring progress of enforcement actions through status reports and ensuring that copies of resolved issues are forwarded to BID for information and unresolved issues for on-site verification of the Compliance Report received from the respective banks for the forthcoming inspection.
o Reviewing violations of various laws / regulations pointed out in the inspection report and imposing monetary penalty where warranted.
o Reviewing appeals of bank regarding refund/ waiver of penalty, assessing the reason(s) presented by bank and other related issues and recommending refund/ waiver of penalty.
o Arranging formal discussions with board of directors/ management of banks/ DFIs to resolve serious issues and agree on course of action for corrective measures and developing Memorandum of Understanding.
o Identifying such financially distressed banks, which cannot be recovered, obtaining approval from superior to initiate/ forward its liquidation in to Banking Policy & Regulations Department.
o Keeping abreast of emerging policy and supervisory issues; participate in developing new policy and supervisory framework or recommend changes in the existing policy and supervisory framework.
The Internal Control Unit (ICU) ensures the accuracy/ authenticity of both the imposition and waiver of penalties and the amount so worked out by aforesaid S&E Divisions. It also carries out other pre-audit review functions and ensures compliance of the internal audit findings. The Support & Services Unit facilitates the department officers in the discharge of their functions through provision of needed services including administrative matters.
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Circulars/Notifications General Information on Payment Systems Payment Systems stability is a core central banking function. Efficient and well functioning payment systems reduce systemic and operational risks, lower transaction costs, aid in efficient use of financial resources, help in financial market to become more liquid and promote stability in the financial system. Following are the web links to the various publications of the Committee on Payment and Settlement Systems (CPSS) available on the web-site of the Bank for International Settlements (BIS) relating to international best practices in payment systems area:
o A glossary of terms used in payments and settlement systems o Core Principles for Systemically Important Payment Systems o Policy issues for central banks in retail payments o Assessment methodology for "Recommendations for Securities Settlement
Systems" o Real-time gross settlement systems
Mission In order to institutionalize its focus on payment systems stability, State Bank of Pakistan has established Payment Systems Department (PSD). The objective of this department is to implement RTGS Project, oversee the existing payment and settlement systems in place and develop a strategy with the banking sector for improvement in the existing systems. The department will also keep abreast with the current international best practices and deal with the banking sector in Pakistan on all issues relating to payment systems. Mission of Payment Systems Department (PSD) is to provide settlement and payment services, and facilitate the development of payment systems for promotion and support of a sound and progressive financial sector in Pakistan. Vision Implement latest technology to keep SBP online with the domestic and international financial industry, and other stakeholders in order to promote efficiency and stability in the financial market.
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Functions of Payment Systems Department On becoming fully functional, the department will carry out following:
o Formulate payment systems’ policies and facilitate adoption of international best practices.
o Introduce developmental strategies for modern payment systems. o Operate real time gross settlement (RTGS) system for fund transfers &
securities transactions efficiently and securely. o Provide oversight to payment systems operated by others i.e. NIFT, ECH
etc. o Provide SWIFT services to internal departments and SBP BSC (Bank)
Offices. o SBP Real Time Gross Settlement System (RTGS) Project
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Research Department
Research Department assumes an important role by providing key inputs for economic policy formulation through its analytical reviews and research work. Clearly, superior analysis of economic policies would be reflected in sounder macroeconomic management by the central bank and, in turn, the evolving structure of monetary and financial system would be more stable, and resilient against internal and external shocks. Thus the Research Department is expected to contribute significantly towards the main objectives of the State Bank of Pakistan. Major Functions: SBP’s Annual and Quarterly Reports: The contribution of the Research Department is largely concentrated in the SBP’s main publications. These reports, which highlight important issues faced by different sectors of the economy, hold following important features:
• By analyzing the rationale and objectives of SBP policies, these reports create a link between the central bank and the rest of the economy (and especially the financial sector).
• The objective analysis allows meaningful guidelines to policy managers at
SBP as well as in the Federal government.
• These reports help in making SBP’s policies more transparent, and encourage people to become more objective in their views on monetary and banking policies of the State Bank. In addition to this, these reports also help in rationalizing market expectations by guiding public perceptions on important economic issues and consequently, make the implementation of SBP policies much easier.
• These reports not only provide first-hand analysis on issues relating to
monetary and financial policies, but also form the basis for further research by other individuals and institutions.
• These reports also help in developing a better public understanding of the
interaction between monetary and fiscal policies and their impact on the overall growth of the economy.
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Financial Sector Assessment The Research Department has also undertaken a comprehensive assessment of the financial sector for the period 1990-2000. The study, presents the first concrete and broad-based assessment of the developments and performance of the financial sector during the 1990s. The report not only incorporates an analytical review of reforms undertaken during the decade, but also supplements this with lessons drawn from the earlier liberalization process, and identifies areas that were ignored in the past. The periodic review of Financial Sector Assessment is also one of the main of this department. SBP’s Working Papers The Research Department is also putting out working papers on different topics. These are short papers initiated by individual officers, containing in-depth analyses of issues that otherwise do not fall completely within the ambit of the SBP’s main publications... Maintenance of economic and financial database Through this function, the Research Department aims to provide reliable, consistent and up-to-date information on major macroeconomic variables. This function thus provides the relevant information to the Governor and higher management; facilitates other researchers in the department; and allows the Research Department to monitor the information available on the economic data page of the SBP website. Support to the Governor, the Board and the Sub-Committees The department prepares and delivers presentations & reports to the SBP governor as well as Board members. This aims to ease the time pressures on senior management as well as enabling more informed decisions.
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Strategic and Corporate Planning Department Vision: To continuously strive to align the SBP strategic and corporate objectives with the developments in the market and the best practices followed by other central banks. Mission: To act as process owner and facilitator for formulating and implementing SBP Strategic Plan, Annual Business Plans and the Business Continuity Plan by developing a close coordination and liaison with key internal, external and international Stakeholders Departmental Objectives:
o Continuous development, implementation and review of SBP Strategic & Business Plans
o Perform the function of coordinating and collating the SBP Strategic Plan and the
o Business Plans while reporting to BOD on quarterly basis o Playing the role of a coordinating office for developing the Financial Sector
Road Map and its implementation o Coordination with International Financial Institutions (IFIs) such as WB,
IMF, ADB and UNDP o Ensure continuity of critical and time sensitive functions of SBP and
prevention of major disruption in the financial system through BCP. o Coordinate, finalize and Publish SBP Annual Performance Review
(Volume-II) o Coordinate with Consultants for completion of External Stakeholders
Survey Departmental Structure: S&CP consists of three divisions and one service unit. A brief introduction of each is given as under: 1. Strategic Planning Division: The purpose of strategic planning division is to facilitate the process of formulation, review and implementation of SBP’s goals and objectives, in line with the fundamental mission on a regular basis. Strategic plans would set the direction for the organization and would provide the framework for other operational processes. Main responsibilities of the division include:
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• Facilitation of the development of the Strategic Plan for State Bank of Pakistan. • Review and monitor the implementation of the Strategic Plans on regular basis. • Facilitate the development of Financial Sector Road Map. 2. Coordination Division: The purpose of establishing this division at S&CPD is to coordinate and facilitate with International Financial Institutions and Multilateral Agencies on technical assistance programs. Besides, coordinate with different departments of SBP on the preparation, finalization and implementation of their Business Planning exercise. The main responsibilities of the Division include:
• Coordination with World Bank (WB), International Monetary Fund (IMF), United Nations Development Fund (UNDP) and Asian Development Bank (ADB) Technical Assistance.
• Coordination with all the departments with regard to Business Planning • Coordinate the preparation of State Bank of Pakistan Annual Performance
Review (Volume-II) • Coordinate the Preparation / Formulation of Monthly Summary Report on
various Developments and Initiatives undertaken in various departments of State Bank of Pakistan
• Coordinate with Consultants (i.e. M/S Anjum Asim Shahid Rahman, Chartered Accountants) regarding the successful completion of External Stakeholders Survey
• Act as Coordination division on special topics as assigned by the Governor 3. Business Continuation Planning (BCP) Division: This Unit is responsible for Business Continuation Plan, which is an on-going process and Director Strategic & Corporate Planning Department is also the BCP Coordinator for the bank. The BCP for Departments and Offices are updated regularly. Moreover, in order to maintain high level of readiness by Departments and Offices tests and rehearsals are conducted by them and reviewed by this Unit. Responsibilities of the Division: • Ensure Continuation of critical and time sensitive functions of SBP and prevent any major disruption in financial system of the country in the face of a catastrophe caused either by natural disaster, fire, civil strife, sabotage or an act of war.
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Statistics and Data Warehouse Department
Mission Our mission is to ensure timely dissemination of high quality statistics for the monetary and macro-economic polices leading to the prosperity of Pakistan Vision The Statistics Department aspires to set and maintain the highest standards of excellence in the compilation and dissemination of efficient statistics Introduction Statistics Department is a core department of the Bank. It was established in late 1949 by the founder Governor (Mr. Zahid Hussain) of the State Bank of Pakistan. Since its foundation, the Department has been responsible for collection, compilation, dissemination and publication of statistics on economic, financial and monetary aspects most pertinent to the central banking. The Department has a central role in providing statistical data to the Government and other policymakers. The system of data collection and processing has gone through a major change over the past few years. The data are being received on diskette and the computations are more heavily computer oriented. This has facilitated the dissemination of statistics to a minimal lag.
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Small and Medium Enterprises Department
Mission To achieve the overall objectives of integrating SMEs in a supportive financial sector through development and promotion of a conducive regulatory environment, undertaking initiatives for capacity building of financial institutions, spreading awareness about SME finance and strengthening coordination among stakeholders. Vision Creation of an inclusive financial system, supported by effective regulatory measures, aimed at integrating SMEs in the mainstream banking sector, on a fast track basis, with ready access to formal sources of finance. About the Department A separate department has been established with the objective to support the integration and development of SME sector. The new department will make efforts toward formulation and implementation of an effective strategy with the overall objective to develop SME sector on a fast track basis. The Department will also focus on providing an enabling regulatory framework for SMEs with specific reference to the varying needs of different clusters, assessing their credit needs, capacity building of banks/DFIs and adopting the awareness building measures through seminars and conferences. The department comprises of the following two divisions • Strategy and Policy Division • Special Initiatives Division Brief functions and objectives of these two divisions are as given below: Strategy and Policy Division The Division is responsible for formulation and implementation of an SME Development Strategy, review of the existing Prudential Regulations in light of the specific requirements of the clusters in special and SME Sector in general as well as capacity building of banks. Special Initiatives Division The Division will undertake special initiatives for enhancing finance to SMEs. In this perspective, concept papers would be developed for introduction of Credit Guarantee Schemes, Venture Capital Funds, Credit Scoring Mechanisms and Credit Rating Agency etc. The division will also coordinate work on conducting a triennial
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survey of SMEs in Pakistan. Further the division will also prepare a quarterly review of SME finance that will enable the SBP to analyze the overall financing trends in SME Sector.
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Real Time Gross Settlement (RTGS) System General Information: Commercial Banks in Pakistan hold accounts at the State Bank of Pakistan to perform settlement amongst them as well as to meet certain regulatory requirements. Each Bank holding account at SBP is issued with a paper cheque-book which is used to withdraw/transfer funds from its account. The paper cheques are presented physically at SBP counters until 1:30 pm each day by Commercial Banks' treasuries to settle their payment obligations against other banks. SBP then passes the necessary journal entries to debit the remitting bank and credit the beneficiary bank and completes the activity by the end of day. SBP is the final settlement agent for the large value interbank market, govt securities market and the eventual net settlement of the retail cheque system. Thus the type of settlements taking place at SBP is vital to the smooth functioning of the financial system. The existing system is based on manual book keeping procedures which is not only inefficient but also prone to various types of risk affecting the overall efficacy of the banking system. State Bank of Pakistan (SBP) is now in the process of introducing a Real-Time Gross Settlement (RTGS) system for large value payments in the interbank market whereby Banks holding accounts at SBP would be able to operate their accounts in real time from their own premises via computerized network between SBP and the participating Banks. Under the new arrangements Banks would be able to settle their transactions affecting their accounts at SBP (e.g. interbank lending/borrowing) immediately after the terms of the transaction have been agreed and executed between the Banks. The ability to make the final settlement of funds in real time would necessitate that the Bank sending a debit instruction must have sufficient balance available in its account before the funds transfer takes place. In other words the account can not go into negative at any time during the day. At times Banks may be facing temporary shortage in their account creating need for a mechanism to obtain liquidity for a short period during the day i.e. intraday liquidity. This need is usually catered for by the Central Bank through availability of intraday repos, collateralized lending etc. In case the Bank is unable to replenish its account with the required liquidity, the transaction is queued in the system until the required liquidity becomes available.
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Statutory Obligations (RMD) STATUTORY CASH RESERVE In terms of Section36(1) SBP Act, 1956, every scheduled bank is required to maintain with State Bank a balance the amount of which shall not at the close of business or any day be less than such percentage of Time & Demand Liabilities in Pakistan 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 (reference BPRD Circular No.27 dated 2nd July,1999). STATUTORY LIQUIDITY REQUIREMENT In terms of Section 29(1) of Banking Companies Ordinance, 1962 every banking company shall maintain in Pakistan in cash, gold or un-encumbered approved securities valued at price not exceeding "the lower of cost or the current market price" an amount which shall not at the close of business in any day be less than such percentage of the total of its time & demand liabilities in Pakistan, as may be 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 (BPRD Circular No.26 dated 2nd July, 1999). MAINTENANCE OF LIQUIDITY AGANINST CERTAIN LIABILITIES In terms of Rule 6 of NBFIs Rules of Business, all NBFIs are required to invest 14% of their liabilities defined in the Rule, in Government Securities, NIT Units, shares of listed companies or listed debt securities in the prescribed manner. For the purpose of this rule, liabilities shall not include NBFIs equity, borrowings from financial institutions including accruals thereon, lease key money, deferred taxation not payable within 12 months, dividend payable within two months, advance lease rentals and deposits from financial institutions. In addition, they are also required to maintain cash balance with State Bank, which shall not be less than 1% of their liabilities as defined above. SUBMISSION OF ANNUAL AUDITED ACCOUNTS BY NBFIs Under Rule 17 of NBFIs Rule of Business, all NBFIs are required to invest to submit their annual audited accounts within a period of 6 months after the close of their accounting year. ANNUAL ACCOUNTS At the expiration of each calendar year every banking company incorporated in Pakistan, in respect of all business transacted by it, and every banking company incorporated outside Pakistan, in respect of all business transited through its
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branches in Pakistan, shall prepare with reference to that year a balance-sheet and profit and loss account as on the last woking day of the year in the prescribed forms(Section 34 of Banking Companies Ordinance, 1962). SUBMISSION OF RETURNS. The accounts and balance-sheet referred to in section 34 together with the auditor’s report as passed in the annual General Meeting shall be published in the prescribed manner, and three copies thereof shall be furnished as returns to the State Bank within three months of the close of the period to which they relate (Section 36 of Banking Companies Ordinance, 1962). MINIMUM CAPITAL REQUIREMENTS In terms of Section 13 of Banking Companies Ordinance, 1962 no banking company shall commence business unless it has a minimum paid up capital as may be determined by the State Bank or carry on business unless the aggregate of its capital and unencumbered general reserves is of such minimum value within such period as may be determined and notified by the State Bank from time to time for banking companies in general or for a banking company in particular. As present, all banks operating in Pakistan are required to maintain capital and unhecumbered general reserve, the value of which is not less than 8% of their risk weighted assets. Additionally they are also required to maintain a minimum paid up capital of Rs.500 million.
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MEETING THE CHALLENGE: CREATING A SUCCESSFUL CENTRAL BANK
o The boom in the past decade with its associated decrease in volatility may
have happened o Because technology sparked a boom just as central banks became better at
their jobs. o Policymakers realized that sustainable growth had gone up, so interest rates
could be kept low without worrying about inflation, and central banks were redesigned.
o Today there is a clear consensus about the best way to design a central bank and what to tell policymakers to do.
o A central bank must be o Independent of political pressure, o Accountable to the public, o Transparent in its policy actions, o Clear in its communications with financial markets and the public. o In addition, there is general agreement o That policy decisions are better made by committee than by individuals, o That everyone is well served when policymakers operate within an explicit
framework that clearly states their goals and the tradeoffs among them.
The need for independence
o The idea that central banks should be independent of political pressure is a new one, because central banks originated as the governments’ banks.
o Independence has two components: o Monetary policymakers must be free to control their own budgets o The bank’s policies must not be reversible by people outside the central
bank. o Successful monetary policy requires a long time horizon, which is
inconsistent with the need of politicians to focus on short-term goals. o Given a choice, most politicians will choose monetary policies that are too
accommodative, keeping interest rates low and money growth rates high. o While this raises output and employment in the near term it may result in
inflation over the longer term. o To insulate policymakers from the daily pressures faced by politicians,
governments have given central banks control of their own budgets, authority to make irreversible decisions, and appointed them to long terms.
Decision-Making by Committee
o In the course of normal operations, it is better to rely on a committee than on
an individual. o Pooling the knowledge, experience, and opinions of a group of people
reduces the risk that policy will be dictated by an individual’s quirks, not to mention that in a democracy, vesting so much power in one individual poses a legitimacy problem.
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The Need for Accountability and Transparency o Central bank independence is inconsistent with representative democracy. o To solve this problem, politicians have established a set of goals and require
the policymakers to report their progress in pursuing these goals. o Explicit goals foster accountability and disclosure requirements create
transparency. o The institutional means for assuring accountability and transparency differ
from one country to the next; o In some cases the government sets an explicit numerical target for inflation,
while in others the central bank defines the target. o Similar differences exist in the timing and content of information made
public by o Today it is understood that secrecy damages both the policymakers and the
economies they are trying to manage, and that policymakers need to be as clear as possible about what they are trying to achieve and how they are going to achieve it.
The Policy Framework, Policy Trade-offs, and Credibility
o The monetary policy framework is made up of the objectives of central
banks and the requirements that central banks be independent, accountable, and good communicators.
o The monetary policy framework exists to resolve the ambiguities that arise in the course of then central bank’s work and also clarifies the likely responses when goals are in conflict with one another.
o Central bankers face the tradeoff between inflation and growth on a daily basis.
o Since policy goals often conflict, central bankers must make their priorities clear.
o A well-designed policy framework also helps policymakers establish Credibility. Central Banks and Fiscal Policy
o The central bank does not control the government’s budget; fiscal policy (the decisions about taxes and spending) is the responsibility of elected officials
o While fiscal and monetary policymakers share the same ultimate goal of improving the wellbeing of the population, conflicts can arise between the two.
o Funding needs create a natural conflict between monetary and fiscal policymakers.
o Fiscal policymakers also tend to ignore the long-term inflationary effects of
their actions. o Politicians often turn to borrowing (instead of taxes) as a way to finance
some portion of their spending, but a country can issue only so much debt.
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o Inflation is a real temptation to shortsighted fiscal policymakers because it is a way to get money in their hands and it’s a way for governments to default on a portion of the debt they owe.
o Responsible fiscal policy is essential to the success of monetary policy.
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References www.sbp.org.pk www.wikipedia.com www.yahoo.com www.google.com Economics of Pakistan (Saeed Nasir) The Economics of Money, Banking And Financial Markets (Fredric and Mishkin) Pak Economy (T.M Yousaf)
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