State Bank Of Pakistan

State Bank of Pakistan 2014

State Bank Of Pakistan2014

STATE BANK OF PAKISTAN(Head Office)

INTERNSHIP REPORT ONSTATE BANK OF PAKISTANKARACHI

BYWajid SaeedROLL NO: 21272BBA (Finance)

DEPARTMENT OF MANAGEMENT SCIENCESHAZARA UNIVERSITY MANSEHRASESSION 2010-2014

This Internship Report is submitted to the Department of Management SciencesIn Partial Fulfillment of the Requirements for the Degree ofBachelor of Business Administration.

Department of Management SciencesHazara University MansehraSESSION 2010-2014APPROVAL SHEET

Internal Supervisor:Name:Mr. Haseeb Hassan Signature: Designation:Lecturer

External Examiner:Signature:________________________Chairman:Signature: _________________________

DEDICATION

This Report is Dedicated to my loving Parents, Sisters, Teachers & Friends who always supported, encouraged and helped me to complete my education without any reluctant.May they all live long?

ACKNOWLEDGEMENTStanding on a bank of river, a man cannot determine its depth unless and until he sets foot in it. It has always been said that the best way to learn is through experience.First of all I would like to praise and thanks Almighty ALLAH, who gave me the strength and will to complete this task that would not have been possible otherwise.I am very grateful to the management of State Bank of Pakistan for offering the summer internship program and providing me an opportunity to gain practical experience.The completion of this report was a difficult task and it just became possible with the cooperative & supportive staff of Risk management Department especially Mr. Mohsin Rasheed (Director RMD), Mr. Qaimat Karim, Mr. Zohaib Pasha Khero and all the other staff members of RMD. I am also very thankful to all my colleagues and friends whose support & motivation help me in completing this report within the allocated time.

PREFACEThis report encircles the basic framework of liquidity risk management in State Bank of Pakistan and other financial institutions. This report is a result of my zealous efforts. Though, I am professionally amateur but the continuous inspiration of my commendable coordinator motivated me to make use of little talent that I had and come forth with this report. I have, in this report concentrated on quality rather than blacking sheets with worthless or irrelevant details. All the crust matters have been discuss for the better understanding with the help of data from authentic sources. Data is acquired from the official website of SBP and from other websites. I am amateur to make a practical analysis but I make our zealous efforts. This is only drawback in our work. Yet I hope that whoever examines this project keep this factor in concentration. I do hope in favorable anticipation that this project will be appreciated keeping in view all the inherent discrepancies in its generation. (Thanks)

Table of ContentsChapter No 114Introduction of the Internship Report141.2 Project Scope141.3 Project Structure141.4 Theme of the Study15

Chapter No 217Introduction to the Banking System in Pakistan and Central Bank of Pakistan172.1 Banking172.2 Banking System of Indo Pak before Partition172.3 Banking in Pakistan192.4 BANKING SYSTEM IN PAKISTAN21Introduction to State Bank of Pakistan232.5 SBP Vision Statement232.6 SBP Mission Statement23Figure 1 from SBP website242.7 History of State Bank of Pakistan242.15 Risks in SBP and other Financial Institutions322.15. Section A: Risk Management in SBP322.15.1 Risk322.15.2 Risks in State Bank of Pakistan322.15.3 Risk Management Department322.15.5 Key Functions of RMD332.15.6 Structure of RMD34Figure 3 from Risk management department in SBP342.15.7 Responsibilities of the RMD342.15.8 Liquidity Risk:352.15.9 Risk Management35Figure 4 from Risk Management Department in SBP362.15.10 Liquidity Risk Management362.15.11 Liquidity Risk management in a State Bank of Pakistan37Section B Risk Management in other Financial Institutions412.15. B Liquidity Risk Management in Financial institutions41Requirements for Liquidity Risk Management44Chapter No 3 Financial Analysis of SBP45Section A: Financial Analysis453.1 Current Ratio45Interpretation453.2 Debt Ratio463.3 Interest Coverage Ratio463.4 Operating Profit Margin473.6 Return on Assets483.7.1Horizontal Analysis of Balance sheet of SBP49Balance sheet item49State Bank Of Pakistan Issuing Department49Rupees in 00049Horizontal analysis in % tage based on year 201149Assets49201149201249201349201249201349Balance sheet item50State Bank of Pakistan Banking Department50Rupees in 00050Horizontal analysis in % tage based on year 201150Assets502011502012502013502012502013503.7.2 Vertical Analysis of Balance Sheet of Issuing Department of SBP53Balance sheet item53State Bank Of Pakistan Issuing Department53Rupees in 00053Vertical analysis in % tage based on Total assets53201253201353201253201353Balance sheet item54State Bank Of Pakistan Banking Department54Rupees in 00054Vertical analysis in % tage based on Total assets54Assets54201254201354201254201354Chapter 4 SWOT Analysis57SWOT analysis of state bank of Pakistan....57 4.2 Strengths...57 1. Premier Institution...572. Agent to Government..573. Reserve Custodian.57.4. Employee Benefit585. Broad Network586. Strictly follows Rules & Regulations597. Professional Competence598. Healthy Environment599. Learning Resource Center5910. Online Network5911. Transparency and accountability604.3 Weaknesses601. Lack of Marketing Efforts602. Political Pressure603. Favoritism and Nepotism604. Uneven Work Distribution604.4 Opportunities611.Electronic Banking612.Micro Financing614.5 Threats611.Political Pressure by Elected Government612.Data theft613.Customer Complaints62Chapter No 5635.1 Recommendations and Conclusion635.1.1 Recommendations635.2 Regulatory Guidelines for Banks645.3 Conclusion64

Chapter No 1Introduction of the Internship Report1.1 IntroductionSBP offered internship curriculum twice every year consisting summer internship and winter internship for the students of B.B.A (Hons), M.B.A and economics of comparative departments in different universities all over Pakistan. In 1st two weeks orientation sessions are conducted for interns at Learning Resource Center (LRC) of SBP for introduction of the central bank of Pakistan presented by diverse directors about their departments that how they are functioning and what are their jobs and responsibilities. After this the interns are allocated to different departments in the bank. I was detailed in Risk management Department where I have to work on multiple types of risks and as well as Liquidity Risk management in central bank and other institutions of the country. 1.2 Project ScopeThis project intricate two interrelated issues, namely financial stability of the whole financial system and the Liquidity risk management function in the Central Bank of Pakistan. The project main objective is to provide a visible understanding of the specificities of the Central Bank of Pakistan activities in the supply of liquidity to the financial sectors in the economy.1.3 Project Structure: The structure of my report consists of two parts. First, the function of the Central Bank of Pakistan as liquidity providers and lenders of last resort to all commercial banks in search to defend financial stability of the economy. Holding and investment of Foreign exchange reserves in such a way that will be favorable for upcoming recessions and inauspicious events later in the coming years. This role will in turn explain why the Central Bank of Pakistan has expanded their balance sheets during the crisis. Second, to intricate on Liquidity risk management in the Central Bank of Pakistan , explaining how this differs from risk management practices in other public or private financial institutions in the country and also about the risk management framework and how this contributes to the policy goals and objectives , among other things, by ensuring the institutions financial protection.1.4 Theme of the StudyManagement and Liquidity risk in any organization is a tough challenge as well as an opportunity for financial institutions as they broaden their playing field. Beyond the goal of regulatory compliance, banks are working to establish liquidity risk and management. Risk management and specially the Liquidity risk management underscores the actuality that the survival of an organization depends heavily on its capabilities to predict and get ready for the change rather than just waiting for the change and react to it. The objective of Liquidity risk management is not to prohibit or prevent or avoid risk taking activity, but to make sure that the risks are knowingly taken with full knowledge, purpose and clear understanding so that it can be evaluated , measured and mitigated. It also prevents an institution from suffering undesirable or un foreseen loss that causing an institution to suffer or materially damage its competitive position. Functions of Liquidity risk management actually be bank specific dictated by the size and quality of balance sheet, complexity of functions, technical/ professional manpower and the status of Management Information System existed in that bank.By better monitoring the liquidity of their products, counterparties and the market as a whole, bank can be able to successfully focus their attention on the most liquidity-efficient actions and make decisions in accordance with their level of liquidity risk appetite. The Basel III principled helps all the banks to improve their risk management framework to deliver successful liquidity risk management and build up their competitive performance.

The 2nd Chapter of this report comprises of Introduction of the banking system in Pakistan and Introduction to the central bank of Pakistan as well as Risk management Department located at the 9th floor of the state bank where I worked on different types of risks mainly Liquidity risk management in the Central bank and other financial Institutions of the economy that how to handle these risks and mitigate them.3rd Chapter of my report is on financial analysis consisting multiple types of ratios and also including horizontal and vertical analysis of statements of position of Issuing and banking Departments as well as profit and loss accounts of the central bank of Pakistan.

4th Chapter consists of SWOT analysis of the bank to put into practice their strategies well as much as necessary and to convert their weaknesses to strengths to prevail over the deficiencies and to take benefit from new opportunities in the market and become attentive of all the threats in the financial systems and the economy.5th Chapter comprises on recommendations and conclusion I concluded after assessing and evaluating different types of ratios and also providing some of the regulatory guidelines and suggestions to the central bank as well as other financial institutions in the financial systems and the economy.

Chapter No 2Introduction to the Banking System in Pakistan and Central Bank of PakistanIntroductionThis Chapter of the report comprises of Introduction of the banking system in Pakistan and Introduction to the central bank of Pakistan as well as Risk management Department of the state bank where I worked on different types of risks specifically Liquidity risk management in the Central Bank and other financial Institutions of the financial system that how to deal with these risks and diminish them.2.1 BankingThe 1962 ordinance of banking companies define banking as:Banking means accommodating or accepting of multiple types of deposits of money for the function of lending or investing from individuals, households and repayable on demand or else and withdrawal by cheques, drafts, order, or else.2.2 Banking System of Indo Pak before PartitionEver since, money became the standard of exchange in different societies, banks existed in multiple forms, and though in previous years their principle was primarily to lend money to the public and the kings. In the words of R.C. Dutt: Loans and usury were well understood in those days and Rishis bewail their state of indebtedness with the ease of primitive timesThe Vedic Epic cleared about lending and taking of credit and also mentioned about contracts of debts at dicing. Later on, Manu in his Sammurti cleared those transactions by mentioning, a rational man should deposit his money with an individual of good family, of good behavior, well-known with the laws rules and regulations having many relatives prosperous and respectable. Manu has also prescribed the rules to govern the policies of loans and rates of interest.In 5th century common peoples were familiar to use hundies as a credit instrument. The land income was collected generally in different kinds, while the services were salaried mostly in cash. Consequently, bankers assistance in these matters and other financial matters of State was very much obligatory and having of great significance. The bankers enjoyed better standings, and the people deposited their ornaments, stuff, Embroidery and cash holdings with them for safe supervision. Different types of loans were lend to the people against delicate and other securities such as ornaments, goods and immovable properties like land buildings and the banker and customer had very cordial associations.The Muslim rules and regulations also provided considerable support to the farmers by giving them soft interest-free loans and grants in cash. They also permitted them to pay the land proceeds in cash or other kind. This helps the farmers fairly enough and this agricultural finance resulted in quantitative food production, which had a great surplus after utilization at home. Therefore, it was being exported beside pure gold in different foreign countries.Other developments like manufacturing development were also not ignored at all. Small-scale units as well as industries were functioning effectively and efficiently under the backing. Loans were also lend for growing the production through the parentage and motivation of the King and the State. These industries thus created enough for home consumption and left other considerable quantities for exports to overseas countries against pure gold. Yard goods, dyeing, ceramic objects, china-ware, indigo, opium, metal work, paper, leather and sugar and surgical instruments at that time were being exported to foreign countries like China, East Indian nations and Pacific Islands to acquire pure gold thus the port towns in India and East Bengal become the centers of the earth trade where numerous overseas buyers used to come for purchasing different types of Indian possessions.Muslim historians of the 12th century also operate as agents to the administration to collect revenues. They also charged money to administration. Such a wealthy society did need well-regulated financial institutions with ideal management having professional knowledge concerning banking and monetary system. Muhammad Tughlaq was the foremost who introduced coupon exchange in India. He issued metal coins as well as paper currency from the Royal Mints in his period. After this ShershahSuri and then Mughal emperors additionally advance this structure. Akbar also makes efforts in the country to prepare and issue money. Royal treasuries were also recognized at that time that performs for the entire country under a well conceived arrangement so that they could function as the offices of Central Bank of the time and due to improvements and affluence of Indian society of that time, the Royal mints and Treasuries did perform as agencies for moving of money as well as for custody of valuables. 2.3 Banking in PakistanAt the time of separation the areas now which represent Pakistan, were producing different food grains and agricultural raw objects for the complete living beings of the subcontinent. There were industries and doesn't matter what raw material was produced was being exported from Pakistan. However, commercial Banking conveniences were provided reasonably well here.Before 14th August 1947 the complete banking system was in the control of non-Muslims. When Hindus capitalists become convinced of division of sub-continent, they transferred their resources to India in secure custodies. Pakistan was affirmed as an independent state after which most of the Non-Muslims initiate immigration from Pakistan to India. The large scale movement of Non-Muslims from Pakistan to India caused the cutback in banking deposits. So scheduled bank branches were condensed from 619 to 213 and the numbers of non-scheduled bank branches was condensed from 411 to 106. The independent sate of Pakistan had no central bank of its own at time of separation. Without possessions it was very difficult for a new state like Pakistan to run its individual banking system instantly and effortlessly. Therefore, in agreement with the provision of Indian independence Act of 1947, an Expert Committee was allotted to study the vital issue. The Committee accomplished that time observance in view the troubles facing after partition that the Reserve bank of India should prolong to function in Pakistan until 30th September 1948, so that problems of maturity of different liabilities and demand liability, coinage, currencies, exchange etc. are settled between India and Pakistan. It is important to enlist the important events in the history of banking in Pakistan. The first imperative event before partition was establishment of Habib Bank Limited, on 25th of August, 1941 at Bombay. This was the foremost bank in Indian sub-continent, which was operated by Muslims. Habib bank Limited transferred its Registered (Cranium) Head Office to Karachi located on I.H Chandigarh road on August 07, 1947 which played an enormous role in the next forty year of financial progress in the country.The 2nd important occasion in the history of Banking in Pakistan is the establishment of Australasia Bank Limited, at Lahore on 3rd December 1942. Its name was altered to Allied Bank of Pakistan Limited, on 1st July 1974. After nationalization of the Banking Industry on 1st January, 1974 three other banks were amalgamated in to it.The other important date is 9th July 1947; when the Muslim Commercial Bank Limited was registered and integrated at Calcutta. Its registered Head Office was transferred to Dacca on 17 August 1948. Consequently its registered Head Office moved to Karachi on 23rd August 1956.The most important day was 01 July 1948, when the State Bank of Pakistan was inaugurated at Karachi as the central Bank of the Islamic Republic of Pakistan. Central bank addressed itself with the vital task of creating a national banking arrangement as well as functioning as regulatory and supervisory authority for banks from the time when it came into being. In order to accomplish this target it provided every assistance and inspiration to Habib Bank to expand its network of branches, and also suggested to Government the establishment of a new bank which could serve as an representative of State Bank. As a result, The National Bank of Pakistan came into existence on 09 November 1949 and by 1952 it became muscular enough to take over the agency function from the Imperial Bank of India. This was the first Commercial Bank in the public sector of Pakistan. At the closing stages of June 1999, the number of scheduled Banks in Pakistan was 52 with 7,950 branches. Out of these there are 25 Pakistani bank with 7,779 branches and 27 foreign banks with 171 branches.On 1st January 1947 the government of Pakistan decided to nationalized the Pakistani scheduled banks and promulgated the bank (Nationalization) Act, 1974, with the following main objectives: To flat the progress of the government to use the capital for the raid economic augmentation of the country and the more urgent social welfare projects. To allocate equality bank credit to diverse classes, Sectors and regions. To synchronize the banking procedure in a variety of areas of practicable joint activity without eliminating vigorous competition among the banks.The Act additionally mentioned for the setting up of the Pakistan Banking Council all Nationalized commercial Banks, consisting of the following members.The government of Pakistan from different economic actions, business plans and patterns in the earlier two decades has realized that the national economy which was subjugated by public sector and production, trade and finance were over regulated. This resulted not only in chronic budget deficit, leaving not much for social and physical infrastructure.The government of Pakistan introduced concise economic reforms designed at liberalization and deregulation of trade, commerce, industry, banking and finance, dropping the role of public sector to increase social sector actions. In order to deregulate the financial sector, various governing laws were amended in 1990.Banks (Nationalized Second Amendment) Ordinance, 1991 was also promulgated the way for privatization of banking in Pakistan. Muslim Commercial Bank, Allied Bank of Pakistan and First Women Bank were disinvested. It is expected that this new policy and practice of disinvestments and privation of banking and financial sector would assist in bringing an innovative period of financial development.2.4 BANKING SYSTEM IN PAKISTANThe banking arrangement of a country by the banking institutions is recognized through the association between the central bank and the other banks working in the economy of the country. It embodies the principles and practices relating to the banking transactions prevalent in the country.In Pakistan there is a central banking system monitored by the central bank, the State bank of Pakistan. The central bank (SBP) directs and monitors the actions of all other banks running in the economy. It guides commercial banks through the monetary dealings, which are cooperatively favorable for the economic development of the country.At the time of separation, there were 631 offices of the scheduled banks. West Pakistan contained 487 and East Pakistan (Bangladesh) having 144 such offices. There were only two Pakistani banks namely Habib Bank and Australasia Bank transformed to Allied bank with their head offices in Pakistan.The Central Bank of the state (SBP) was inaugurated in July 1948. It suggested to the government to establish a new bank as an representative of the Central Bank as well as forefront of its credit policy. The government accepted the suggestion f SBP and National Bank of Pakistan came into existence on 15th September 1949. This bank also helped Habib Bank to enlarge its organization all over the country. From here onwards quick development took place in the banking system of the country. Currency notes having the value of Rs.5, Rs.10, and 100 were issued by the State Bank for the first time in October 1948 and by August 1949 all currency notes issued by the Reserve Bank of India worth Rs.12, 000 million were withdrawn and replaced with Pakistani currency.Under the banks Nationalization Act of 1974 the commercial banks were nationalized in January 1974. The public banks included Habib Bank, Allied Bank, Muslim Commercial Bank and National bank besides these Nationalized Commercial banks (NCBs) and other commercial banks in the private sector, there are certain foreign bar operating in Pakistan like Citibank, standard chartered and Grind lays Bank etc. The foreign banks are under the administrative control of State Bank being the central Bank of the country.The national Government also setup the Pakistan Banking Council (PBC) on 21st March 1974 underneath the banks nationalized Act of 1974. It reports directly to the Ministry of Finance and provides support and guidance to the State Bank. Its responsibilities include. Evaluate performance of (NCBs) according to criteria laid down by the PBC and socio-economic objective lay down by the Central Bank of Pakistan. Policy recommendations to the administration of the state. Policy procedures to the nationalized commercial banks of the country. Appointment of superior staff and guidance within the (NCBs). Magnificent approval to (NCBs) to write off loans beyond Rs.25, 000, 00. Supervise performance of (NCBs) counting overseas branches and Yearly Inspections of (NCBs).Vital steps were also taken to put into practice a more adequate and flat form of banking and financial system in harmony with the injunctions of fundamental principles of Islamic Banking System. The major acceptable modes of National Islamic Banking finances are: Musharikaha Mudaribaha Salam and Istisna.Introduction to State Bank of Pakistan

STATE BANK OF PAKISTAN

2.5 SBP Vision StatementRenovate State Bank of Pakistan into modern and self-motivated State Bank of Pakistan, highly specialized and well-organized, fully prepared to play an evocative role, on sustainable basis, in the economic and social enlargement of Pakistan. 2.6 SBP Mission StatementEndorse monetary and financial stability and foster a sound and self-motivated financial system, so as to accomplish continuous reasonable economic growth and prosperity in Pakistan.

Figure 1 from SBP website2.7 History of State Bank of PakistanReserve Bank of India was the central bank Before 14 August 1947, for both India and Pakistan. On 30 December 1948 Reserve Bank of India reserves were dispersed among Pakistan and India -30 percent (750 M gold) for Pakistan and 70 percent for India. In July 1, 1948 Muhammad Ali Jinnah inaugurate the State Bank of Pakistan under the SBP order 1948, with the responsibility to control the other banks, issuing of currency notes and maintenance of reserves for securing monetary stability in Pakistan and commonly to operate the currency and credit system of the country.State bank's duties were widened when the State Bank of Pakistan Act 1956 was introduced. Which help the state bank to regulate the monetary and credit system of Pakistan and to improve its growth in the best national interest with the purpose of securing monetary stability and fuller utilization of the Pakistan productive possessions? In 1974 SBP was fully nationalize beneath Government of Pakistan in the period of Zulfikar Bhutto but In February 1994, the State Bank has given full sovereignty and On January 21, 1997, sovereignty of SBP was further strengthened when the Government of Pakistan issued three Amendments in Ordinances (approved by the Parliament in May 1997). Which includes the State Bank of Pakistan Act 1956, Banking Companies Ordinance, 1962 and Banks Nationalization Act, 1974? By these changes, SBP was given complete and special authority to control the banking sector, for the conduct of an independent monetary policy and to set perimeter on government borrowings from the SBP.2.8 Functions of State Bank of Pakistan2.8.1 Primary Functions of state bank of Pakistan1.Monetary Policy ManagementControl the monetary and credit circumstances to achieve inflation target, while keeping in view the financial growth scenarios intact.Instruments Discount Rate or Interest rate. Operations of Open Market Legislative Liquidity Requirements (CRR, SLR) 2. Regulation & Supervision of Banking System Ensuring the financial stability of Banks and financial Institutions On-site and off-site monitoring CAMELS and IRAF Split Prudential Regulations for Corporate Consumer, SMEs, Microfinance, Agriculture and Islamic Banking Sectors.

3.Sole Authority to issue Currency Notes

4. Lender of Last Resort The Central Bank lends Short Term Loans to scheduled banks in times of their need against securities.5. Payment System Monitoring and controlling the payment and settlement system Real-time on line settlement systems and Facilitating electronic banking products, services and information technology infrastructure2.8.2 Secondary Functions of State bank of Pakistan1. Public Debt Management Subscribing government securities at the time of their issue Sale/purchase of short term securities Responsibility of sale/purchase of prize bonds2. Management of Foreign Exchange Exchange Rate is identified according to market conditions with limited involvement by the SBP Managing Foreign Exchange reserves.3. Advisor to Government Suggest the state concerning monetary and economic issues Monetary and Fiscal Coordination Board Information and reports on the State of the financial system Maintaining good associations with International monetary Institutions 4. Bankers Bank Commercial banks keep their deposits as legislative reserves The Central Bank endow with concessional remittance facilities Facilitating cheque clearance facility through NIFT5. Banker to Government Allow the deposits of cash and drafts Undertakes gathering of cheques The Central Bank can advance loans to government on certain stipulations and conditions.2.8.3 Developmental Functions of SBP Expansion of financial framework Providing credit to priority sectors / specialized monetary institutions Growth in different sectors including: Farming sector Islamic Banking System Micro Finance Small & Medium Enterprises (SMEs) Accommodation and Infrastructure2.9 Powers, Functions & Operations in SBP are governed by: State Bank of Pakistan Order 1948 State Bank of Pakistan Act 1956 Nationalization Act 1974 Autonomy of State Bank of Pakistan in 1997 Banking Companies Ordinance 1962

2.10 Organogram of SBP

Figure 2 from the Official website of SBP

2. 11 Organizational Structure of SBP Governor State Bank of Pakistan. Deputy Governor Banking Department SBP Deputy Governor Operations Department SBP Deputy Governor Islamic Banking department and Special Initiatives

2.12 ORGANIZATION AND STRUCTURESBP is a sovereign organization having three entities including State Bank of Pakistan (The Head Office) Karachi SBP Banking Services Corporation(BSC) Karachi National Institute of Banking & Finance(NIBAF) Islamabad2.13 SBP Core Values1. CourageTo construct and own decisions, give and accept suggestions openly without favor or fear2. Commitment to Excellence Doing the best under the specified circumstances and looking beyond the observable.3. Problem solving approachTo have optimistic approach to issues, with commitment to total resolution. Be part of the solution, not the problem

2.14 Departments in State Bank of Pakistan Agricultural Credit & Microfinance Department. Banking Inspection (On-Site) Department. Banking Policy & Regulations Department (BPRD). Banking Surveillance Department. Consumer Protection Department (CPD). DFIs & Exchange Companies Inspection (On-Site) Department. Domestic Market & Monetary Management Department. Exchange Policy Department (EPD). Economic Policy Review Department. External Relations Department. Finance Department.. Human Resource Department (HRD). Information Systems & Technology Department. Infrastructure, Housing & SMEs Finance Department. Internal Audit & Compliance Department. International Markets & Investments Department. Islamic Banking Department. Museum & Art Gallery Department. Office of the Corporate Secretary. Off-site Supervision & Enforcement Department. Payment Systems Department. Research Department. Statistics and Data Warehouse Department. Treasury Operations (Back Office) Department and Risk Management department.

After 1st two weeks of Internship all the interns are detailed to different departments to work within the surroundings of SBP with extremely experienced employs of SBP to make the most of their majors in practical. I was detailed in Risk management department where I have assigned the project of liquidity risk management in central bank as well as other financial institutions of the economy2.15 Risks in SBP and other Financial Institutions2.15. Section A: Risk Management in SBP2.15.1 Risk:The possibility of happening of unfavorable occurrence is called Risk or chance of encountering destruction or failure, hazard, or a chance of injury or loss is called Risk.Banks for International Settlement (BIS) define risk as- Risk is the danger that an incident or action will negatively affect an organizations ability to accomplish its objectives/goals and lucratively carry out its strategies.2.15.2 Risks in State Bank of Pakistan:Strategic Risk, Regulatory Risk, Technological Risk, sovereign Risk, Innovative Risk, Political Risk, Liquidity Risk, Foreign Exchange Risk, Credit Risk, operational risk, Cultural Risk, Market Risk etc. As all risks have its own magnitude but we will focus our attention on Liquidity Risk and managing it.2.15.3 Risk Management DepartmentIn extension of the Banks restructuring plan, in August 2007 Risk Management Cell was transformed to Risk Management & Compliance Department headed by the Chief Risk Officer. In 2009 it yet again became a unite but in 2014, observance in view the most up-to-date development in banking sector and bringing the clearness and accuracy in operation of the SBP, the board of directors decided again to renovate this Risk Management & Compliance unite into full fledge department named Risk Management Department2.15.4 Mission StatementExists to diminish financial loss, include risk culture, and creates principles of risk management in the entity.2.15.5 Key Functions of RMDKey functions of Risk Management Department are: Build up and execute Bank wide Risk Management approach. Recommend the Governor on the different risk related issues. Build up and continue risk exposure measurement and compliance framework and provide suitable level of risk reporting. Suggest risk appetite to the senior management. Compel the risk committees to generate risk inventory and gaps and engage in organization wide risk issues on a sensible basis. Create oversight mechanism for determining risks in the Banks subsidiaries and associated entities. Publicity of different risks i.e. Financial Risks, Operational Risk, Strategic, Policy, and Other Risks.

2.15.6 Structure of RMD

Figure 3 from Risk management department in SBP2.15.7 Responsibilities of the RMD The farm duties of the risk management department are as under:

Ensuring each internal/external risk of the State Bank of Pakistan and to discover, assess, report and monitor and assisting the risk with the aim of controlling and mitigating those risks; Suggesting the board of directors on the risk management policy and process and any deviations from the risk management policy; Exposure on any significant risk event to the board of directors in an appropriate manner; executing the risk management system approved by the board of directors; Recording the risk records and risk register; Preparing reports to the board of directors as per their requirements. Communicating the risk management policy, process and roles and farm duties relating to bank. Providing guidance, support and prop up different department in the area of risk management to overcome their department risks to mitigate problems Preparing the essential information available to the internal audit gathering to facilitate independent assessment of the risk management Process/system; and Supporting the board of directors in promoting a culture of risk awareness, determining and managing at each and every stage within departments of the SBP.2.15.8 Liquidity Risk: A liquid market is a market where participant can rapidly execute large volume transactions with a small impact on prices (BIS) The risk that a sudden surge in liability withdrawals may leave a Financial Institution in a position of having to liquidate assets in a very short period of time and at low prices. Liquidity risk is the risk to a banks earnings and capital arising from its inability to timely meet obligations when they come due without incurring unacceptable losses.2.15.9 Risk Management:Risk Management is a designed technique of dealing with the possible loss or damage. It is an ongoing procedure of risk assessment through various methods and tools which continuously Evaluate what could go wrong Find out which risks are vital to deal with and Execute strategies to treat with those risks

Figure 4 from Risk Management Department in SBP2.15.10 Liquidity Risk ManagementLiquidity risk management is a vital banking function and an integral part of the asset and liability management process. The primary role of banks is the maturity transformation of short-term deposits (liabilities) into long-term loans (assets) and makes banks inherently susceptible to liquidity risk. The renovation process creates asset and liability maturity mismatches on a banks balance sheet that must be aggressively managed with available liquidity. This entire procedure is known as liquidity risk management. The availability of liquidity either internally or externally is dominant in the management of these maturity mismatches. The successful management of liquidity allows a bank to fund increases in its assets (loans and investments) and to meet obligations as they come due (withdrawal of deposits). A collapse in liquidity risk management results in a bank becoming not capable to meet its obligations. This circumstances if played out could easily cause a bank to be unsuccessful. A bank can continue tomeet its uncertain cash flow obligations and stay in good physical shape by managing liquidity risk carefully.2.15.11 Liquidity Risk management in a State Bank of PakistanThe Central Bank of Pakistan has preferences and constraints that differ from those of private banks. The objectives of State Bank of Pakistan are defined in their statutes, i.e. the protection of financial stability of whole financial system in Pakistan as their primary mandate. It is necessary For State Bank of Pakistan to create such policies which become flourishing in long run otherwise whole financial system will be decomposed. SBP have no liquidity risk in home market as it has the authority and right to print and issue currency notes in Pakistan. But as for as liquidity risk in global prospective concern , State bank of Pakistan has liquidity risk adjacent to its investments and receivables or assets. It needs to remain credible by making sure that at least two conditions are met.First, State Bank of Pakistan adequately capitalized and runs in such a way that it remains financially independent. Financial independence helps to keep external parties from unduly interfering in the conduct of monetary policy.Second, the long-term satiability of a State Bank of Pakistan needs to be ensured or very essential, so that the banks reaction to specific economic circumstances is not influenced by considerations of the short-term financial impact of such policies on its profit and loss accounts along with its global trading account.In normal market operations or in lending operations, the Liquidity risk control structure applied in bank to plan according to four basic principles: protection, consistency, simplicity and transparency. Protection is considering the main objective of the risk control framework, while consistency, simplicity and transparency are needed for the framework to work in an efficient, accountable and conventional manner.Risks taken in State Bank of Pakistan actions are examine in a holistic manner, bearing in mind the interaction of different portfolios that it had made in Foreign exchange and operations. For that reason, a state-of-the-art comprehensive risk monitoring and reporting framework is done within Risk Management Department, for capable of providing decision-making bodies with appropriate liquidity risk management input. As a vital element of the risk management purpose at a State Bank of Pakistan, the uppermost governance principles are practiced, both in terms of the reporting lines and organizing the risk management meaning within department. In boom period or in ordinary times, State Banks has to retain its balance sheet in contraction way in terms of risk-taking capacity. And in recession or in critical time SBP has to expand balance sheet and taking more risks in situations where other market participants are deleveraging and dropping their risks. The main determinants of the risk profile, especially on the asset side of a State Banks balance sheet by considering the applicable risk mitigation measures are done as well. The extent to which State Bank of Pakistan hold Foreign exchange risk in their balance sheets differs considerably from the typically much lower Foreign exchange exposures of private organizations.Limit/Exposure TypeAmount ( US $ Million)

Total Counterparty Current Limit4770

In-House counterparty MM Exposure3272

In-House FX Credit Exposure59

Nostro Account Balance491

Overnight EUR Placement with NBP0

Federal Reserve NY & DBB RA Position3026

Fixed Income in Chinese Bonds1053

Total In-house Exposure7901

SBP Net Exposure8650

State Bank of Pakistan has exposure to exchange rate (or FX) risk. SBP has $ 8.65 Billion in-house reserves and details are as follows;In the same way the credit exposure of out-source reserves of SBP is as under with the splendid total of $1.95 billionCredit Exposure SBP (US $ Millions) on June 2014RegionTotal

Asia Pacific164.61

Europe482.56

North America1,272.28

Supranational28.25

Grand total1,947.69

On June 2014 Regions and Rating Bonds details of SBP Foreign Exchange Reserves;Regions%LT Ratings%

Asia Pacific27.21AAA56.81

North America38.93AA15.68

Western Europe27.9A27.51

Middle East5.96BBB0

The foreign currency positions regularly listed in the management reports which point out that SBP has implemented a system for evaluating, monitoring and controlling its liquidity positions of FX in all foreign locations which are supportive to covers significant foreign currency positions. These foreign exchange reserves display the soundness of any country. These foreign exchange reserves are so important for import base countries like Pakistan which have almost trade deficit from its sovereignty. Similarly the holding and investment of existing reserves are major concern for State Bank of Pakistan in term of return as well as its liquidity. The SBP also use foreign reserves for intervention purposes, State Bank of Pakistan use to intervene in the markets by selling foreign currency if a sudden appreciation of those currencies impairs price stability or financial stability directly or indirectly. In a sense, the need to intervene represents a contingent policy liability on SBP, and by taking such an FX risk, are effectively hedging or matching such contingent liability.Gold price movements are also considerably important in State Bank of Pakistan than in private banks. State bank of Pakistan has holdings of gold, amount to just about 246,096,839,000, according to annual report of 2013. The holdings are on this scale not only for historical reasons, but also for risk management reasons, as gold is use to safe from upcoming adverse times. In times of financial suffering or recession time, gold indeed helps State Bank of Pakistan to maintain a frozen financial position.Another prominent difference of State Bank of Pakistan exposures compared with those of private institutions is to be originating in their investment portfolios. State Bank of Pakistan is typically managed with a very high degree of prudence. Investment is made in only AAA, AA, A rating countries and companies. From the above matrix it can be seen that SBP has not only invested in well rating companies but also in well reputed countries as well. Almost 57% investment is made in AAA companies and By this way risks are kept to least levels that ensure the financial buffers of the institution remain free to meet policy needs accordingly, while at the same time attempting to achieve sufficient income to cover inflationary effect or operating expenses along with to ensure long-term profitability. The regular fixed-income portfolios of the SBP, as an example, are managed against internally derived benchmark portfolios which serve as a key for performance and risk measurement. The management of these real portfolios beside with those of benchmarks is constrained by a number of characteristic risk control measures, such as relative value-at-risk limits and caps imposed on credit and liquidity risk exposures.Section B Risk Management in other Financial Institutions2.15. B Liquidity Risk Management in Financial institutionsA banks liquidity risk management standards are set down undoubtedly and communicated to key decision makers in the bank. Unlike other risks that intimidate the very solvency of a Financial Institution, liquidity risk is a normal aspect of the daily management of a Financial Institution. Depository Institutions complimentary handle liquidity so they are able to pay out cash as deposit holders request withdrawals of their funds. Only in extreme cases liquidity risk creates problems develop into solvency risk problems.2.15 C Levels of Liquidity risk in Financial Institutions.

Depository Institutions having soaring exposure Life Insurance Companies having moderate Exposure Mutual funds, hedge funds, pension funds, and property or Casualty insurance companies: having low exposure typically low, which does not mean zero:September 2006, Amaranth Advisors, a hedge fund forced to shut down

Causes of liquidity risk Seriously Reliance on demand deposits Core deposits of FIs Depository Institutions need the capacity to forecast the distribution of net deposit drains. Seasonality effects in net withdrawal patterns from banks. Early 2000s difficulty with low rates in financial sector: Financial Institution doings suitable investment opportunities for the large inflowsMethods use by FIs for managing its Liquidity Risk. Liquidity Risk in Liability side 1. Purchased Liquidity Management2. Stored Liquidity Management Liquidity Risk in Assets side1. Purchased Liquidity Management2. Stored Liquidity ManagementTraditionally, FI managers have seriously relied on stored liquidity management as most important method for liquidity management. But today, many financial Institutions particularly the largest banks with entrance to the money market and other non deposit markets for funds are relying on purchased liquidity (or liability) management i.e. borrowing from interbank market or using discount window to deal with the risk of cash shortfalls.Bank Deposits generally have a much shorter contractual maturity than loans and liquidity management needs to provide a cushion to cover anticipated deposit withdrawals from banks. Liquidity is the ability to efficiently hold deposit of banks as also reduction in liabilities and to fund the loan growth and possible funding of the banks off-balance sheet claims. These cash flows are placed in different time buckets based on expectations on the basis of behavior of assets, liabilities and off-balance sheet items. Liquidity risk consists of Funding Risk, Time Risk & Call Risk.Funding Risk: It is the need to restore net out flows due to unexpected withdrawal /nonrenewal of deposit from banks.Time risk: It is the need to pay off for non receipt of expected inflows of funds from banks, i.e. performing assets turning into nonperforming assets.Call risk: Call risk will happen on account of crystallization of contingent liabilities and inability to undertake profitable business opportunities when desired.From 1st January 2014, SBP has made regulations for all banks operating in Pakistan to adopt Basel III. In financial crisis the inability of banks to roll over their short-term financing, Basel III introduces two new ratios: the Liquidity Coverage Ratio (LCR) and the Net Stable Funding Ratio (NSFR), with the objective of to improve the banks short-term (LCR) and long-term (NSFR) balance sheet resilience.

The Liquidity Coverage Ratio (LCR)Stock of high-quality liquid assets > 100%

Total net cash outflows over the next 30 calendar days

Characteristics of high-quality liquid assets (a) Fundamental characteristics Low credit and market risk: Ease and sureness of valuation: Low correspondence with risky assets: Listed on a developed and predictable exchange market: (b) Market-related characteristics Energetic and sizable market: Occurrence of committed market makers: Low market concentration: Flight to quality: The Net Stable Funding Ratio (NSFR)

Available amount of stable funding > or = 100% Required amount of stable funding By adopting these new ratios, banks are able to achieve the following goals:

Promote short-term resilience of banks liquidity risk profile. Enhance the banking sectors ability to suck up shocks arising from financial and economic stress. Provide a sustainable maturity arrangement for assets and liabilities. Encourage banks to fund their actions with additional stable sources of funding.Requirements for Liquidity Risk ManagementThe risk management process should make up the following broad lowest requirements. The risk must be managed within a definite Liquidity risk management plan(decision-making) A clear liquidity risk management and funding approach must be approved at an executive and non-executive board altitude Operating restrictions to liquidity risk exposures must be set and adhered to. Procedures for liquidity planning under substitute scenarios must be agreed, Including crisis situations Some common failures have been recognized in banks liquidity risk management processes, which have contributed to severe sustainability issues. A weak liquidity risk management structure that did not account for the risks posed by products and business lines Business incentives that were uneven with the risk tolerance level of the bank Misjudging unforeseen contingent obligations and the liquidity that would be necessary for the bank to meet these obligations The belief that prolonged liquidity disruptions as practiced during the financial market crisis, were improbable Stress tests that abortive to account for possiblemarket wide global strain or the severity and duration of disruptions.

Chapter No 3 Financial Analysis of SBPIntroductionThis Chapter of my report is on financial analysis consisting multiple type of ratios as well as horizontal and vertical analysis of statements of position of Issuing and banking Departments of SBP as well as profit and loss accounts of SBP.

Section A: Financial Analysis3.1 Current RatioCurrent ratio = (Current Assets / Current Liabilities)*100Rupees in 000YearsCurrent AssetsCurrent LiabilitiesCurrent Ratio

2012212566111811761812:61

2013470360068711521752:98

InterpretationThis ratio is one of the most significant ratios that evaluate the solvency of an organization and the aptitude of that fastidious organization to pay the short term obligations. As shown in the table above in 2012 the bank has 2:61 ratio which means that if it has two rupees it has to pay 61 paisa as liability that is extremely good ratio in banking sector. If we look at the 2013 the ratio has increased to 2:98 means for every two rupees it has to pay 98 paisaliabilitybecause of the liabilities that have increased due to IMF loan and other conditional foreign loans.

3.2 Debt RatioDebt Ratio = (Total Liabilities / Total Assets)*100Rupees in 000YearsTotal LiabilitiesTotal AssetsDebt Ratio

2012803915612112676158571:34%

2013979089234137796497471:05%

InterpretationThe debt ratio assesses the percentage of assets financed by the money borrowed or rented. The enlarged value in this ratio tells about the higher amount of other peoples money being used to engender (increase) the revenue. The bank has approximately same ratio in both the years that shows its assets are financed up to 71% by the borrowed money that is a bad symptom because it reduces the confidence level of investors and this particular ratio is satisfactory up to 50% only. This ratio tells about the bank took loans from outsiders to run its affairs. 3.3 Interest Coverage Ratio

Times interest earning ratio = (Operating income / interest expense)

Rupees in 000YearOperating IncomeInterest expenseInterest Coverage ratio

2013165235507374875944.07

This ratio evaluates about an organization aptitude to meet its contractual interest payments. The upper value indicates that the organization having higher ability to make its contractual interest payments. The central bank has a definite figure that shows it can easily meet its interest obligations in 2013. On the other hand the bank also has a good current ratio that illustrate that it is able to meet its contractual obligations. 3.4 Operating Profit Margin

Operating Profit margin = operating Profit / Revenue (Interest)Rupees in 000YearsOperating ProfitRevenueOperating Profit Margin

201316523550718005406591.76%

InterpretationThis ratio shows the proportion of each rupee remain as profit after the presumption of expenses and all the other costs apart from finance cost and taxes. The 91.76% shows that bank is earning almost 92 paisa and 8 paisa is going underthe head of expenses. The higher ratio tells that the organization earnings are better.

3.5 Net profit margin RatioNet profit margin Ratio = (Net profit / Revenue) *100Rupees in 000YearsNet profitRevenueNet profit margin

201216479335918005406591.52%

201320421200422242869391.81%

InterpretationThe net profit margin shows the proportion of each rupee remain as profit after the presumption of costs and all expenses counting finance cost and taxes. Highernet profit margin is preferable. The State bank net profit margin has increased in 2013as compared to 2012 that shows the higher amount of return in the year 2013.3.6 Return on AssetsReturn on assets = (Net Profit / Total assets)*100Rupees in 000YearsNet ProfitTotal assetsReturn on assets

2012164793359112676158514.62%

2013204212004137796497414.81%

InterpretationThis ratio evaluates the efficacy of management that how it utilizes the accessible assets to generate profits. Higher the ratio better is the position of the firm. In case of State Bank of Pakistan it is also increased from 14.62 % to 14.81% in the year of 2013 which shows the good display ofbank performance and utilizing banks assets in a superior and proper way. 3.7.1Horizontal Analysis of Balance sheet of SBPBalance sheet itemState Bank Of Pakistan Issuing DepartmentRupees in 000

Horizontal analysis in % tage based on year 2011

Assets20112012201320122013

Gold reserves held by the bank812771061309705521575455161.1493.84

Foreign Currency reserves685468587439104769378121392-35.94-44.48

Special drawing Rights of IMF12383051116322156318150-6.06-48.96

Notes and coinsIndia notes representing 6382496836787276657.1214.01

assets receivable from the reserve Bank of India301227027180362496236-9.77-17.13

Total notes365051934017143223901-6.82-11.69

Investment108830311458259765675410375321.08520.61

Commercial paper held in Bangladesh (former east Pakistan)7850078500785000.000.00

Asset held with the reserve bank of India17403252591897302174348.9373.63

Total assets8934283991046039412122371761217.0836.97

Liability bank note issue8934283991046039412122371761217.0836.97

Balance sheet item

State Bank of Pakistan Banking Department

Rupees in 000Horizontal analysis in % tage based on year 2011

Assets20112012201320122013

Local currency reserves13564618191319644934.1144.82

Foreign Currency reserves162815117197200616543008663621.12164.16

Earmarked foreign currency balances5682218895211233959461-98.32-40.24

Special drawing Rights of IMF41853431371236117522649.551361.65

220191485201477313470360068-8.50113.61

Reserve tranche with the IMF under quota arrangement10881132861504822.1038.30

Securities purchased under agreement to resale33715973-100.00-100.00

Current account of govt of Punjab40915860

Current account of govt of Baluchistan4820407139087937127734188.5447.87

Current account of govt of AJK05185640

Investment 37306680663573986549534821570.1432.78

Loan advances and bill of exchange288091460242880410331853796-15.6915.19

Balance due from govt of India and Bangladesh (former east Pakistan)4677500503359254161327.6115.79

Property and equipments190194331852228418073733-2.68-4.97

Intangible assets 163769120923116393-26.16-28.93

Other assets1543341117605450863007714.07-44.08

Total assets9591911251135820480137796497418.4173.66

Liabilities Bill payable5719421224446827785114.0944.73

Current account of Govt1421975587082334866621868-50.19-53.15

Current account with SBP banking Services corporation a subsidiary23696363702522

Securities sold under agreement to repurchase618167576758751-89.07-100.00

Deposits of banks and other financial institution30516857642454938227373978139.1261.12

Other deposits and accounts10413599614560102616777918939.8261.12

Payable to IMF8506374291263686490030417.2992.58

Other liabilities722290636027983743016815-16.54-40.44

771183634800500476974691003.8026.39

Deferred liability staff retirements benefits114847891218399142046846.09-63.39

Capital grant rural finance resource center59431594300.00-100.00

Deferred liability staff retirements benefits39397784204684

Deferred income340845206244193549-39.49-43.21

Total liability7830686998129501419790892343.8225.03

Net assets17612242632287033939887574083.32126.48

Represented by Share capital 1000001000001000000.000.00

Allocation of special drawing rights of IMF1525958152595815259580.000.00

Reserves671387697628853317270465713.63157.24

Unappropriate profit 91398719644049149025682955.16436.39

77904598174354982223356297123.81186.70

Unrealized appreciation on gold reserves794409211297683431567742963.3597.34

Surplus on revaluation of property and equipments187470141874704187470140.000.00

Minority interest29893-100.00-100.00

17612242632287033939887574083.32126.48

In the above Horizontal analysis of balance sheet and Income statement I have used 2011 as base year and different heads of balance sheet and income statement are compared to know the performance of current year as compared to the base year. As in balance sheet the gold reserves are increasing from 2011 to 2013, but the currency reserves are continuously decreasing. Total assets are also increasing in issuing department .The total assets of banking department increasing in fact because of better performance. Overall performance of the bank is continuously becoming better of restructuring of bank in 2002. If I talk about the Income statement the interest income is increasing but the interest expense is negative in 2012 but it reaches almost to 52% in 2013 because of foreign loans from IMF and other loans that government taken. Profit of the bank also shows the positive trend and reaches to the level of 2.4 Trillion rupees which is almost higher than 2011.

3.7.2 Vertical Analysis of Balance Sheet of Issuing Department of SBPBalance sheet itemState Bank Of Pakistan Issuing DepartmentRupees in 000Vertical analysis in % tage based on Total assets

Assets2012201320122013

Gold reserves held by the bank1309705521575455112.5212.87

Foreign Currency reserves43910476937812139241.9830.90

Special drawing Rights of IMF1163221563181501.110.52

Notes and coinsIndia notes representing 6836787276650.070.06

assets receivable from the reserve Bank of India coins271803624962360.260.20

Total notes340171432239010.330.26

Investment45825976567541037543.8155.19

Commercial paper held in Bangladesh (former east Pakistan)78500785000.010.01

Asset held with the reserve bank of India259189730217430.250.25

Total assets10460394121223717612100.00100.00

Liability bank note issue10460394121223717612100.00100.00

Balance sheet itemState Bank Of Pakistan Banking DepartmentRupees in 000Vertical analysis in % tage based on Total assets

Assets2012201320122013

Local currency reserves1819131964490.020.01

Foreign Currency reserves197200616543008663617.3631.21

Earmarked foreign currency balances952112339594610.082.46

Special drawing Rights of IMF313712361175220.280.44

20147731347036006817.7434.13

Reserve tranche with the IMF under quota arrangement13286150480.000.00

Securities purchased under agreement to resale0.00

Current account of govt of panjab40915860

Current account of govt of Baluchistan1390879371277341.220.52

Current account of govt of AJK5185640

Investment 63573986549534821555.9735.95

Loan advances and bill of exchange24288041033185379621.3824.08

Balance due from govt of India and Bangladesh (former east Pakistan)503359254161320.440.39

Property and equipments18522284180737331.631.31

Intangible assets 1209231163930.010.01

Other assets1760545086300771.550.63

Total assets11358204801377964974100.00100.00

Liabilities Bill payable12244468277850.110.06

Current account of Govt70823348666218686.244.83

Current account with SBP banking Services corporation a subsidiary23696363702522

Securities sold under agreement to repurchase67587510.600.00

Deposits of banks and other financial institution42454938227373978137.3819.87

Other deposits and accounts14560102616777918912.8212.18

Payable to IMF91263686490030418.0430.41

Other liabilities60279837430168155.313.17

8005004769746910070.4870.73

Deferred liability staff retirements benefits1218399142046841.070.31

Capital grant rural finance resource center594300.010.00

Deferred liability staff retirements benefits393977842046840.35

Deferred income2062441935490.020.01

Total liability81295014197908923471.5771.05

Net assets32287033939887574028.4328.95

Represented by Share capital 1000001000000.010.01

Allocation of special drawing rights of IMF152595815259580.130.11

Reserves762885331727046576.7212.53

Unappropriate profit 96440491490256828.493.56

17435498222335629715.3516.21

Unrealized appreciation on gold reserves1297683431567742911.4311.38

Surplus on revaluation of property and equipments1874704187470141.351.36

Minority interest0.000.00

32287033939887574028.4328.95

In vertical analysis I use the total assets as base to know the performance of different heads of balance sheet and I use only one base to know the overall assets and liabilities performance. In profit and loss account interest income is used as base to evaluate the performance of different expenses. All the expenses heads and other heads are compared to the interest revenue. Assets and liabilities are depicted in the bar chart that shows the liabilities are less than the assets that means the assets are financed with debts are lees and bank is in the position of solvency. The main reason behind the greater return is investment that the bank has in its major currencies and deposits of foreign currencies and deposits of foreign countries. The good profit also shows the outstanding performance of the bank fund managers even then they have no latitude to deviate from bench mark. I think if they were allowed to deviate from bench mark they can perform better.

Chapter No 4 SWOT AnalysisIntroductionThis Chapter consists of SWOT analysis of the bank to execute their strategies well as much as necessary and to convert their weaknesses to strengths to prevail over the deficiencies and to take advantage from new opportunities in the market and become observant of all the threats in the economy.4.1 SWOT Analysis of State Bank of PakistanSWOT analysis stands for strengths, weaknesses, opportunities and threats. This analysis is the careful assessment of the firms internal strengths and weaknesses as well as external opportunities and threats. The overall assessment of the firms strengths, weaknesses, opportunities and threats is called SWOT analysis. In SWOT analysis the best strategies carry out the firms mission by: Identifying new opportunities by utilizing strengths Neutralizing its threats and Avoiding or correcting its deficienciesSWOT analysis is one of the critical steps in strategy formulating using the firms mission as context. Managers assess internal strengths distinctive competencies and weaknesses and environmental opportunities and threats. Thus the main objective is to develop smart strategies to take advantage of strengths and opportunities and by avoiding threats and weaknesses.

4.2 Strengths1 Premier institution SBP is one of the foremost bank of Pakistan that is accountable for regulations and supervision of banking developing and monetary policies of Pakistan since its inauguration. It provides guidelines time to time for appropriate working of monetary and financial system in Pakistan.2. Agent to Government:The State Bank Pakistanperforms additionalservices forgovernmentbyproviding loans and supervising the government accounts as well as ofother banks.3. Reserve custodianSBP is honored to hold the reserves of the entire economy as no other bank is authorized to hold the reserves apart from they can deal in reserves but the definitive holder is SBP. The bank is also responsible to look after and organize the exchange rate in the country.4. Employee BenefitThe employers at SBP are accessible to reasonable monetary benefit. Normally bonuses are given. Employees also have the benefit of the interest free loans free medical care of family and insurance of life. These hand out as a benefit and competency for the bank and a source ofenthusiasm for the employees.5. Broad NetworkThe bank has another competency i.e. it has two subsidiaries one is the NIBAF and second one is the BBP-Banking Services Corporation. SBP has 33 departments that are performing their ownseparate functions.

6. Strictly follows Rules & RegulationsThe employees at SBP are stringent followers of rules and regulations obligatory on them by bank. TheregimentedenvironmentatSBPbolsters itsrepresentationand alsoenhances the overall output of theorganization which finally has a positive effect on SBP goals.7. Professional CompetenceThe employs at the SBP here have a fine hold on their depiction, as they are extremely accomplished professionals with better training programs in business administration, banking, economics etc. These professional competencies facilitate the employees to understand and perform the function and operation in betterway.8. Healthy EnvironmentThe working situation in the SBP Karachi is very good as each and every employee has its personal cabin to work with dedication without any annoyance and its office environment can be compared to any multinational organization. There is a cafeteria for employees that cover alarge area having fresh and healthy items for employs to eat.9. Learning Resource CenterSBP has its own training department known as Learning Resource Center (LRC) where all the training programs are held, even the international seminars and meetings conducted over there. The orientation session of the interns are also held in LRC for 1st two weeks and the final group presentations by interns are also delivered in LRC.10. Online NetworkSBP has the potential of being powered by the network of computers, which have saved time, energy and would have lessened the mental stress the employees have.Thats why added tothe strength that ispowered bynetwork ofcomputers.

11. Transparency and accountabilityThecentral bankpublishesarithmeticalinformationonitsreservesandforeign currency transactions in its monthly announcements. Also, since 1992, the SBP has provided an overview of reserves management operations and return relative to benchmarkinitsAnnual financialReports.4.3 Weaknesses1. Lack of Marketing EffortsThe bank doesnt its strategic and corporate image, services, etc on a competitive way. Hence lacks far behind in their marketing efforts. A need for forceful marketing are required in SBP as in the present period marketing is now the part of every organization.2. Political PressureThe strong political hold of some parties, Government, the recent political issues and their domination in bank internal issues affecting the bank in a negative way. They sometime have to grant loan under the pressure of government, which leads to irregular and adjusted feeling in the bank employees.3. Favoritism and NepotismThe promotions and appraisal bonuses etc in the bank are often powered by seniors preferences or depends upon their wills and decisions. This adds to the negative factors, which denominate the employs thus resulting in affecting their performance negatively which is not a fine sign for the bank in achieving its targets4. Uneven Work DistributionThe workload in SBP is not frequently distributed and the workload tends to be more on some employees while others escape away from their responsibilities which serve as a de motivation factor for employees performing above average work.

4.4 Opportunities1. Electronic BankingThe world today has become a international village because of advancement in thetechnologies,particularlyincommunicationsector.Moreemphasisisnow given to avail the up to date technologies to enhanced the performances. SBPcan utilize the electronic banking opportunity to ensure on line banking 24 hours a day. This would give a competitive edge over others.2. Micro FinancingThere are a number of opportunities for micro financing in the market. Now the time has arrived when the State Bank must recognize it and on step to cater ongoing demand and the micro finance department should device policies and regulations to make stronger the micro finance network4.5 Threats1. Political Pressure by Elected GovernmentThe ongoing shift in power in political arena in the country effects the performance of the bank has to forwardloans to politically powerful persons which create asenseofinsecurity anddemoralizationinthe customeraswellas employees.2. Data theftThe bank is currently dealing from data theft and the present technology in Pakistan is not that much effective and others are very costly in providing a safe place oninternetawayfromdomesticandinternationalhackswhichterrorize overall environment of the bank

3. Customer ComplaintsThere exists no usual and exact system of the removal of customercomplaints. Now a day a need for total customer satisfaction is emerging and in their demanding consequences customer's complaints are ignored.

Chapter No 5Introduction

This Chapter comprises on recommendations and conclusion I concluded after assessing multiple types of ratios and also providing some of the regulatory guidelines and suggestions to the central bank as well as other financial institutions in the financial system. 5.1 Recommendations and Conclusion5.1.1 Recommendations To direct liquidity risk behavior & influence the outline of a liquidity risk profile and management should use all available options. Using financial incentives and penalties to influence liquidity risk taking behavior is effective management tool. Sharing of information by keeping confidentiality intact is also supportive to find out different ways for controlling the liquidity risk as valuable inputs may be received through this sharing. Even information on creditworthiness of counterparties that are known to take substantial liquidity risk can also help. Diversification is extremely significant. As it lowers the variance in investor portfolios, improves corporate ability to raise debt, reduces employment liquidity risks, & heightens operating efficiency. Careful structuring of the alliance in advance of the deal and continual adjustment thereafter help to build a constructive relationship. One should not trust while in business. Personal chemistry is good but is no substitute for monitoring mechanism, co-operation incentives, & organizational alignment. Without support system within the organization itself, external alliances are doomed to fail.

5.2 Regulatory Guidelines for BanksThe Basel Committee on Banking Supervision has identified Principles for Sound Liquidity Risk Management and Supervision, by providing more guidance on the following. Liquidity risk acceptance Maintaining sufficient levels of liquidity Allocating liquidity costs, benefits and risks to business Identification and measurement of contingent liquidity risks Design and use of severe stress test scenarios A contingency funding plan Intraday liquidity risk and collateral Public disclosure in promoting market discipline Multiple principles are set out for guidance to bank regulators on best practice liquidity risk management in banks. Because of the importance of managing liquidity risks in banks, these principles are valuable and found useful. 5.3 ConclusionAfter the world financial crisis, which scratch the world a lot, now innovative regulatory changes has been made and rules has been drafted and put into action, and new techniques of risk-taking and risk management have emerged. These are all important outcomes of any serve crisis. Perhaps most significantly, the financial crisis verified that liquidity is the most vital component of a properly running financial system-it is the crucial life blood banks and other financial institutions and by direct expansion the essential lifeblood of all other parts of the corporate and governmental world. The rapid disappearing of asset and funding liquidity during the crisis was enormously damaging: for many weeks, and even months, many of the traditional providers of liquidity were unable or unwilling to participate in their liquidity provision functions, meaning that sovereign authorities primarily national central banks, were called on to be the true liquidity providers of last resort it is mostly because of their actions that a true financial collapse was avoided, but not before many large institution failed or had be rescued, and not before many non-financial stakeholders were financially damaged. Indeed, the list of liquidity-related casualties is nothing short of remarkable: Washington Mutual, Indy Mac, countrywide, Lehman Brothers, bear Stearns, Wachovia, Merrill Lynch, Citigroup, AIG, Northern Rock, RBS, Bradford and Bingley, Dexia, IKB and Sachsen Landes bank, to name but a few all suffered from severe liquidity problems. Little wonder then that risk management has re-entered the spotlight.Given the transformational qualities of the most recent crises it seems timely and appropriate to bring the original material in Liquidity Risk up to date and to further expand its scope. The new enhancement in technology and improvement in current thinking and ideas has provides a prepared roadmap on innovative rules regulations and governance progressions.

References Basel III: International framework for liquidity risk measurement, standards and monitoring, Basel committee on Banking Supervision, December 2010 Basel III: A global regulatory framework for more resilient banks and banking systems, Basel Committee on Banking Supervision, December 2010 www.sbp.org.pk Liquidity Management Framework- Implementation challenges for banks, Accenture, 2011 Adrian, T. and H. S. Shin (2007), .Money, Liquidity and Financial Cycles. Working Paper, Princeton University. Bindseil, U., B. Weller and F. Wuertz (2003), .Central banks and commercial banks. liquidity risk management..Economic Notes, 32.1, 37-66 Ali, K., Akhtar, M. F., & Sadaqat, S. (2011). "Financial and Non-Financial Business Risk Perspectives Empirical Evidence from Commercial Banks". Middle Eastern Finance and Economics, 150-159. Bank for International Settlements (BIS). 1999. Market Liquidity: Research Findings and Selected Policy Implications. May. Crockett, A. 2008. Market Liquidity and Financial Stability. Banque de France Financial Stability ReviewSpecial Issue on Liquidity. No. 11 (February): 1317. Adrian, T. and H. Shin. 2010. Liquidity and Leverage.Journal of Financial Intermediation 19 (3): 41837. Financial Institution Management-a risk management approach, chapter17, Anthony saunder, 2008 Liquidity Risk-managing funding and asset risk, Palgrave Macmillan, 2014

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Executive Director-FRMDirector RMDOutsourced Reserve Management & Fixed Income DivisionDivisional Head Risk Management DepartmentInvestment Committee of the Management (ICM)Support Services & Admin Unit

In-house Reserve Management DivisionDivisional Head IT Security DivisionDivisional Head Enterprise Risk Management DivisionDivisional Head DMonitoring, Reporting & Coordination UnitAssessment & Quantification UnitPolicy Development & Awareness UnitCompliance Monitoring, & PolicyMarket Risk ,Performance Monitoring & ReportingCredit Risk Monitoring & ReportingCompliance Monitoring, & PolicyMarket Risk, Performance Monitoring & ReportingCredit Risk Monitoring & ReportingT Security Awareness & Training IT Risk ManagementPolicies Standards & GuidelinesIT Security OperationsERM Committee of the Management