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INTERNSHIP REPORT ON
STATE BANK OF PAKISTAN
KARACHI
BY
Wajid Saeed
ROLL NO: 21272
BBA (Finance)
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Internal Supervisor:
Name:
Signature:
Designation:
Lecturer
External Examiner:
Signature:
________________________
Chairman:
Signature:
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_________________________
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DEDICATION
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ACKNOWLEDGEMENT
Standing 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.
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PREFACE
This 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)
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Table of Contents
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Chapter No 1........................................................................................................................14
Introduction of the Internship Report...................................................................................14
1.2 Project Scope...................................................................................................... 14
1.3 Project Structure.................................................................................................. 14
1.4 Theme of the Study.............................................................................................. 15
Chapter No 2........................................................................................................................17
Introduction to the Banking System in Pakistan and Central Bank of Pakistan..................17
2.1 Banking..........................................................................................................................17
2.2 Banking System of Indo Pak before Partition.............................................................17
2.3 Banking in Pakistan.......................................................................................................19
2.4 BANKING SYSTEM IN PAKISTAN...........................................................................21
Introduction to State Bank of Pakistan................................................................................23
2.5 SBP Vision Statement........................................................................................... 23
2.6 SBP Mission Statement......................................................................................... 23
Figure 1 from SBP website.......................................................................................... 24
2.7 History of State Bank of Pakistan.............................................................................24
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Interpretation........................................................................................................................45
3.2 Debt Ratio......................................................................................................................46
3.3 Interest Coverage Ratio..................................................................................................46
3.4 Operating Profit Margin.................................................................................................47
3.6 Return on Assets.............................................................................................................48
3.7.1Horizontal Analysis of Balance sheet of SBP..............................................................49
Balance sheet item...............................................................................................................49
State Bank Of Pakistan Issuing Department........................................................................49
Rupees in 000...................................................................................................................49
Horizontal analysis in % tage based on year 2011...............................................................49
Assets...................................................................................................................................49
2011......................................................................................................................................49
2012......................................................................................................................................49
2013......................................................................................................................................49
2012......................................................................................................................................49
2013......................................................................................................................................49
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2012......................................................................................................................................54
2013......................................................................................................................................54
2012......................................................................................................................................54
2013......................................................................................................................................54
Chapter 4 SWOT Analysis.......................................................................................... 57
4. Employee Benefit.............................................................................................................58
5. Broad Network.................................................................................................................58
6. Strictly follows Rules & Regulations...............................................................................59
7. Professional Competence.................................................................................................59
8. Healthy Environment......................................................................................................59
9. Learning Resource Center................................................................................................59
10. Online Network..............................................................................................................59
11. Transparency and accountability.......................................................................................60
4.3 Weaknesses.....................................................................................................................60
1. Lack of Marketing Efforts................................................................................................60
2. Political Pressure..............................................................................................................60
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Electronic Banking......................................................................................................61
2.
Micro Financing..........................................................................................................61
4.5 Threats............................................................................................................................61
1.
2.
Data theft.....................................................................................................................61
3.
Customer Complaints..................................................................................................62
Chapter No
5
63
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Chapter No 1
Introduction of the Internship Report
1.1 Introduction
SBP 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.
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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.
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Chapter No 2
Introduction to the Banking System in Pakistan and Central Bank
of Pakistan
Introduction
This 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 Banking
The 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.
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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. Smallscale 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 wellPage 18 of 72
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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
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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.
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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
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.
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Renovate 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.
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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.
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3.
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To construct and own decisions, give and accept suggestions openly without favor or
fear
2. Commitment to Excellence
Doing the best under the specified circumstances and looking beyond the observable.
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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 economy
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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.
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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
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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 Type
Amount ( US $ Million)
4770
3272
59
491
0
3026
Position
Fixed Income in Chinese Bonds
1053
7901
8650
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 billion
Credit Exposure SBP (US $ Millions) on June 2014
Region
Total
Asia Pacific
164.61
Europe
482.56
North America
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1,272.28
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Supranational
28.25
Grand total
1,947.69
On June 2014 Regions and Rating Bonds details of SBP Foreign Exchange Reserves;
Regions
LT Ratings
Asia Pacific
27.21
AAA
56.81
North America
38.93
AA
15.68
Western Europe
27.9
27.51
Middle East
5.96
BBB
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
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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.
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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 inflows
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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 longterm (NSFR) balance sheet resilience.
> 100%
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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 possible market wide global strain or the severity
and duration of disruptions.
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Current Assets
212566111
470360068
Current Liabilities
81176181
71152175
Current Ratio
2:61
2:98
Interpretation
This 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 paisa liability because of the
liabilities that have increased due to IMF loan and other conditional foreign loans.
Rupees in 000
Years
Total Liabilities
Total Assets
2012
803915612
1126761585
71:34%
2013
979089234
1377964974
71:05%
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Debt Ratio
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Interpretation
The 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.
Rupees in 000
Year
Operating Income
Interest expense
2013
165235507
3748759
44.07
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Operating Profit
Revenue
2013
165235507
180054065
91.76%
Interpretation
This 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 under the head of expenses. The
higher ratio tells that the organization earnings are better.
Net profit
164793359
204212004
Revenue
180054065
222428693
Interpretation
The 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. Higher net profit margin is
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preferable. The State bank net profit margin has increased in 2013 as compared to
2012 that shows the higher amount of return in the year 2013.
Net Profit
Total assets
Return on assets
2012
164793359
1126761585
14.62%
2013
204212004
1377964974
14.81%
Interpretation
This 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 of bank performance and utilizing banks assets in a superior and proper way.
Rupees in 000
Horizontal analysis in %
tage based on year 2011
Assets
Gold reserves held by
the bank
Foreign Currency
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2011
2012
2013
2012
2013
81277106
1309705
157545
61.14
93.84
68546858
52
4391047
51
378121392
-35.94
-44.48
7
12383051
69
1163221
5
of IMF
Notes and coins
India notes representing
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Investment
-6.06
-48.96
638249
683678
727665
7.12
14.01
3012270
2718036
249623
-9.77
-17.13
-6.82
-11.69
321.08
520.61
631815
3650519
10883031
1
3401714
322390
4582597
1
675410375
65
78500
78500
78500
0.00
0.00
1740325
2591897
302174
48.93
73.63
17.08
36.97
17.08
36.97
89342839
1046039412
3
122371761
9
89342839
1046039412
2
122371761
issue
Horizontal analysis in %
State Bank of Pakistan Banking Department
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Rupees in 000
Assets
Local currency
2011
2012
2013
135646
181913
196449
34.11
44.82
430086636
21.12
164.16
952112
339594
-98.32
-40.24
418534
3137123
61
611752
649.55
1361.6
22019148
2014773
2
470360068
-8.50
5
113.61
5
10881
13
13286
22.10
38.30
-100.00
reserves
Foreign Currency
16281511
reserves
Earmarked foreign
7
56822188
1972006165
currency balances
Special drawing
Rights of IMF
Reserve tranche
15048
2012
2013
33715973
purchased under
100.00
agreement to resale
Current account
of govt of Punjab
Current account
409158
1390879
3
518564
37306680
6357398
495348215
of govt of Baluchistan
Current account
of govt of AJK
Investment
6
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60
712773
4820407
65
188.54
47.87
70.14
32.78
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Loan advances
28809146
2428804
331853796
0
4677500
10
5033592
541613
-15.69
15.19
7.61
15.79
Bangladesh (former
east Pakistan)
Property and
19019433
1852228
180737
-2.68
-4.97
equipments
Intangible assets
163769
4
120923
33
116393
-26.16
-28.93
Other assets
15433411
1760545
863007
14.07
-44.08
Total assets
95919112
0
1135820480
7
137796497
18.41
73.66
114.09
-50.19
44.73
-53.15
-89.07
Liabilities
Bill payable
Current account
of Govt
Current account
571942
14219755
8
1224446
7082334
8
2369636
Services corporation
827785
666218
68
370252
2
a subsidiary
Securities sold
under agreement to
61816757
6758751
repurchase
Deposits of banks
100.00
30516857
4245493
273739781
39.12
61.12
institution
Other deposits
6
10413599
82
1456010
167779189
39.82
61.12
and accounts
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26
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Payable to IMF
85063742
9126368
490030
7.29
92.58
Other liabilities
72229063
6
6027983
41
430168
-16.54
-40.44
77118363
7
8005004
15
974691
3.80
26.39
4
11484789
76
1218399
00
420468
6.09
-63.39
0.00
Deferred liability
staff retirements
benefits
Capital grant rural
finance resource
1
59431594
30
center
Deferred liability
100.00
3939778
staff retirements
340845
206244
Total liability
78306869
8129501
Net assets
9
17612242
41
3228703
6
100000
39
100000
1525958
1525958
Share capital
Allocation of
special drawing
rights of IMF
Reserves
Unappropriate
profit
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420468
4
benefits
Deferred income
Represented by
193549
-39.49
-43.21
979089234
3.82
25.03
398875740
83.32
126.48
100000
0.00
0.00
152595
0.00
0.00
8
67138769
7628853
172704657
13.63
157.24
9139871
3
9644049
49025682
955.16
436.39
Unrealized
77904598
1743549
223356297
79440921
82
1297683
156774
appreciation on gold
reserves
Surplus on
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43
18747014
1874704
revaluation of
123.81
186.70
63.35
97.34
0.00
0.00
-100.00
29
187470
14
property and
equipments
Minority interest
29893
17612242
6
3228703
398875740
83.32
39
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.
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100.00
126.48
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Vertical analysis in %
tage based on Total assets
Rupees in 000
Assets
2012
Gold reserves held
by the bank
Foreign Currency
reserves
Special drawing
2012
2013
130970552
15754551
2013
12.52
12.87
439104769
378121392
41.98
30.90
11632215
6318150
1.11
0.52
683678
727665
0.07
0.06
2718036
2496236
0.26
0.20
3401714
3223901
0.33
0.26
458259765
675410375
43.81
55.19
78500
78500
0.01
0.01
Rights of IMF
Notes and coins
India notes
representing
assets
receivable from the
reserve Bank of
India coins
Total notes
Investment
Commercial
paper held in
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Bangladesh (former
east Pakistan)
Asset held with
2591897
3021743
0.25
0.25
1046039412
1223717612
100.00
100.00
1046039412
1223717612
100.00
100.00
Vertical analysis in
% tage based on
Rupees in 000
Assets
Local currency reserves
2012
181913
Total assets
2013
2012
2013
196449
0.02
0.01
1972006165
430086636
17.36
31.2
952112
33959461
0.08
1
2.46
3137123
6117522
0.28
0.44
201477313
470360068
17.74
34.1
13286
15048
0.00
3
0.00
currency balances
Special drawing Rights
of IMF
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4
Securities purchased
0.00
40915860
of panjab
Current account of govt
13908793
7127734
of Baluchistan
Current account of govt
518564
of AJK
Investment
635739865
242880410
1.22
0.52
495348215
55.97
35.9
331853796
21.38
5
24.0
5033592
5416132
0.44
8
0.39
18522284
18073733
1.63
1.31
equipments
Intangible assets
120923
116393
0.01
0.01
Other assets
17605450
8630077
1.55
0.63
Total assets
1135820480
1377964974
100.00
100.
00
Liabilities
Bill payable
Current account of Govt
1224446
70823348
827785
66621868
2369636
3702522
0.11
6.24
0.06
4.83
0.60
0.00
6758751
201
4
424549382
273739781
37.38
19.8
145601026
167779189
12.82
7
12.1
91263686
49003041
8.04
8
30.4
accounts
Payable to IMF
Other liabilities
60279837
43016815
5.31
1
3.17
800500476
97469100
70.48
70.7
12183991
4204684
1.07
3
0.31
0.01
0.00
retirements benefits
Capital grant rural
59430
3939778
4204684
0.35
retirements benefits
Deferred income
206244
193549
0.02
0.01
Total liability
812950141
979089234
71.57
71.0
Net assets
322870339
398875740
28.43
5
28.9
Represented by Share
100000
100000
0.01
5
0.01
capital
Allocation of special
1525958
1525958
0.13
0.11
76288533
172704657
6.72
12.5
96440491
49025682
8.49
3
3.56
174354982
223356297
15.35
16.2
Unappropriate profit
Page 60 of 72
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1
Unrealized appreciation
on gold reserves
Surplus on revaluation
129768343
15677429
11.43
11.3
1874704
18747014
1.35
8
1.36
0.00
0.00
28.43
28.9
of property and
equipments
Minority interest
322870339
398875740
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.
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4.2 Strengths
1 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 Pakistan performs additional services for government by providing loans
and supervising the government accounts as well as of other banks.
3. Reserve custodian
SBP 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 Benefit
The 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 of enthusiasm for the employees.
5. Broad Network
The 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
own separate functions.
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7. Professional Competence
The 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 better way.
8. Healthy Environment
The 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 a large
area having fresh and healthy items for employs to eat.
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SBP 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 to the
strength that is powered by network of computers.
4.3 Weaknesses
1. Lack of Marketing Efforts
The 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 Pressure
The 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.
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4.4 Opportunities
1. Electronic Banking
The world today has become a international village because of advancement in
t h e t e c h n o l o g i e s , p a r t i c u l a r l y i n c o m m u n i c a t i o n s e c t o r. M o r e e m p h a s i s i s
n o w given to avail the up to date technologies to enhanced the performances. SBP can utilize
the electronic banking opportunity to ensure on line banking 24 hours a day. This would give a
competitive edge over others.
2. Micro Financing
There 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 network
4.5 Threats
1. Political Pressure by Elected Government
The ongoing shift in power in political arena in the country effects the performance of the
bank has to forward loans to politically powerful persons which create a sense of insecurity
and demoralization in the customer as well as employees.
2. Data theft
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The 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
on internet away from domestic and international hacks which terrorize
o v e r a l l environment of the bank
3. Customer Complaints
There exists no usual and exact system of the removal of customer complaints. Now a day a
need for total customer satisfaction is emerging and in their demanding consequences customer's
complaints are ignored.
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Chapter No 5
Introduction
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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.
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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 Conclusion
After 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.
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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.
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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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