CENTRAL BANKS and STATE BANK OF PAKISTAN: CENTRAL BANKS and STATE BANK OF PAKISTAN ADNAN QAYUM IMTIAZ HUSSAIN MUHAMMAD WAQAS SAIF ULLAH QAISER ABBAS DEFINITION OF BANK: DEFINITION OF BANK According to Prof. Crowther “Bank is an institution which gets the loan to lend & in this way creates credit money.” Prof. R.KENT “ Bank is an organization whose principle operations are concern with accumulating surplus money from general public and advancing others for expenditure.” ORIGIN OF BANKS: ORIGIN OF BANKS Various views about of BANKS & word BANK Word BANK is derived from Italian word Bancus means “BENCH” or Derived from German word Banque means “FIRM” Origin of Central Banks dependent on the origin of normal Banks Which are Commercial Banks nowadays So First origin of Commercial Banks Then origin of Central Banks ORIGIN OF COMMERCAIL BANKS: ORIGIN OF COMMERCAIL BANKS Origin can be traced to 600 BC According to G. Crowther in his famous book written on MONEY Named “An Outline of Money” Banks has three developmental stages THE MERCHANTS THE GOLDSMITH THE MONEY LENDRS 1. MERCHANTS STAGE: 1. MERCHANTS STAGE Earliest & first stage of banking relates to the working of Merchants They were traders of commodities Trading from place to place Risky for them to carry metallic money for payments Traders with high reputation begin to issue RECIPTS as money for mode of payments Thus Merchant Banking forms in the world “Bank Draft” is a modern shape of that receipts. 2. GOLDSMITHS STAGE: 2. GOLDSMITHS STAGE Second stage relates to Goldsmiths They were called “ Seiths ” in India They used to receive Gold & silver for safe custody They begin to issue receipts for those metallic money Receipts were payable on demand Thus Goldsmiths receipts became Medium of Exchange So termed as fore-runner s of modern bank note Today “ Cheque ” is a modern form of that receipts 3. MONEY LENDERS STAGE: 3. MONEY LENDERS STAGE Third stage of Banking Development When Goldsmiths became money lenders to people Through experience they keep small portion of Gold & Silver to meet customers demand Start lending the extra metallic money to depositors and needy people So give rise to overdraft and lending facilities Extra lending, less reserves, different receipts started problem and confusion in people This leads to failure of banking system at that time TO FIX ALL THOSE PROBLEMS AND BRINGS CONFIDENCE OF PEOPLE ON BANKING SYTEM : TO FIX ALL THOSE PROBLEMS AND BRINGS CONFIDENCE OF PEOPLE ON BANKING SYTEM CENTRAL BANKS CAME IN TO EXISTANCE CONFRENCE AT NUREMBERG: CONFRENCE AT NUREMBERG A conference was held in Nuremberg , Germany in 1548 In order to cover loop holes in banking system Decided that a BANK should be set up by STATE which should streamline banking organization and rules regarding banks. First central bank was formed in Geneva,1578. Geneva, Switzerland , 2 nd most populous city Zurich, the most populous city of the world nowadays (Switzerland) ORIGIN OF CENTRAL BAKNS: ORIGIN OF CENTRAL BAKNS Before WW1 (1914-18), there was few countries having central banks After WW1, huge confusion in currency and exchange markets round the world Large withdrawals from banks which brought failure to banks So to control supply of money and credit in economy and maintain stable business conditions Conference held in 1920 at Brussels , Belgium Mandatory of CB for every country in the world DEFINITION OF CENTRAL BANK: DEFINITION OF CENTRAL BANK CENTRAL BANK is an institution that manages a nation's currency , money supply , and interest rates . Central banks also oversee the commercial banking system of their respective countries. Central bank is also called Reserve Bank Monitory Authority FAMOUS CENTRAL BANKS OF WORLD: FAMOUS CENTRAL BANKS OF WORLD FEDRAL RESERVE SYSTM BANK OF JAPAN PEOPLE’S BANK OF CHINA BANK OF ENGLAND THE BANK OF RUSSIA Central Bank Rep; of Turkey Reserve Bank of Australia Reserve Bank Of India State Bank Of Pakistan 1913, Washington, USA 1882, Tokyo 1948, Beijing 1694, London 1860, Moscow 1932, Ankara (CBRT) 1960, Sydney 1911, Mumbai 1948, Karachi NAMES Established, Headquartes STATE BANK OF PAKISTAN: STATE BANK OF PAKISTAN INTRO STRUCTURE & FUNCTIONS HISTORY: HISTORY Before 1947, FRBI was the central bank of Sub-continent After separation Reserves Division of FRBI was 70:30 in between India and Pakistan By British Government's commission in 1948 30 % reserve of Gold means = 750 million Muhammad Ali Jinnah inaugurated SBP The State Bank of Pakistan commenced operation on July 1, 1948 SBP works under State Bank Act 1956. STATE BANK OF PAKISTAN: STATE BANK OF PAKISTAN State Bank of Pakistan Act 1956 ,defines rights and duties of State Bank According to Act SB REQUIRES TO ISSUE NOTES, KEEPING RESERVES, TO REGULATE THE MONETORY AND CREDIT SYSTEM OF THE PAKISTAN WITH THE BEST NATIONAL INTEREST. SB will be required to perform not only the usual Central Banking functions but will also be entrusted with the prosperity, stability, and growth of the domestic economy FACTS & FIGURES: FACTS & FIGURES CENTRAL BANK : PAKISTAN ESTABLISHED : 1948 HEADQUATER : KARACHI REGIONAL BRANCHES: LAHORE ISLAMABAD PESHAWAR QUETTA SUB BRANCHES MULTAN SUKKAR D.I.KHAN FOREIGN RESERVES : $ 17B RECENT GOVERNOR : YASEEN ANWAR OFFICIAL WEBSITE: www.sbp.org.p k Banks & other institutions under-control : 55 ORGANIZATIONAL STRUCTURE AND SECTIONS: ORGANIZATIONAL STRUCTURE AND SECTIONS BOARD OF DIRECTORS: BOARD OF DIRECTORS 12 Members (March 2012) 1 Governor ( Yaseen Anwar ) 2 Deputy Governors (Banking & Operations) 7 Executive Directors (1 from each province) 2 Chief Economic Advisors ( Monitory Policy & Other Policy Development) SBP is an autonomous body President Appoints Governor Of SBP All the decisions taken by SBP are independent FUNCTIONS OF SB: FUNCTIONS OF SB PRIMARY ISSUE OF NOTES MONITORY POLICY GOVT: BANK SUPERVISION OF BANKS LENDER LAST RESORT etc SECONDARY MANAGEMENT OF F. EXCHANGE MANAGEMENT OF PUBLIC CREDIT ADVISOR TO GOVT: RELATIONSHIP WITH IFI TRAINING FACILTY DEVELOPMENT OF FINANCIAL INSTITUTIONS CREDIT PRORITIES TO DIFFERENT SECTORS ISLAMIZATION OF BANKING SYSTEM TRADITION NON-TRADATIONAL 1. ISSUING CURENCY/ NOTES: 1. ISSUING CURENCY/ NOTES Sole authority to issue notes in Pakistan except coins SBP is following Minimum Reserve System to issue note 20-30% of notes are backed by Gold & Silver reserves Up to 1965, Proportion Reserve system was followed The amount of notes in circulation can be adjusted according to the general price level and economic activity in the country METHODS OF ISSUING NOTES : Fixed Fiduciary System Proportion Reserve system Minimum Reserve System 2.FARMING AND OPERATION OF MONITORY OR CREDIT POLICY: 2.FARMING AND OPERATION OF MONITORY OR CREDIT POLICY SB frames & operates Monitory Policy in Pakistan Monitory Policy is conducted by SB to regulate and control the volume of money and credit supply in the country in order to achieve to achieve specific economic objectives like Full Employment Price Stability Increase in Production Increase in Investment Economic Development Stability of Capital Market Proper Distribution Of Wealth Exchange Rate Stability Increase Exports Improve Standard of Living Tools of Monitory Policy: T ools of Monitory Policy All the tools are used to expand & contract money supply in the country Main instrument of monitory policy are OPEN MARKET OPERATION In OPO SB buys or sell govt : securities in open market By buying G.Securities expands money supply while selling contracts money supply in the country CHANGING RESERVE REQUIREMENTS (Rs. 19billion) Mandatory cash reserve ratio kept by commercial banks with SB Increase in reserve ratio reduces the excess reserves/cash with banks and in turn reduces level of advances (to reduce inflation) Tools of Monitory Policy: Tools of Monitory Policy Decrease in CRR, increases the advances to the public which results in high production, employment & investment etc CHANGING THE DISCOUNT RATE The rate at which SB discounts the bills of exchange for commercials banks is called discount rate. Rise the bank rate pushes up the cost of borrowing of commercial banks which reduces money supply in country Vice versa 3. REGULATIONS & SUPERVION OF BANKS: 3. REGULATIONS & SUPERVION OF BANKS SB has full powers to supervise and control the banking system in Pakistan Powers relate to Credit ratings of banks Performance of banks Licensing of banks Their branch expansion Liquidity of assets of banks Management and methods of working of banks Inspection of banks Amalgamation, Reconstruction & liquidation of banks 4. FOREIGN EXCHANGE MANAGEMENT: 4. FOREIGN EXCHANGE MANAGEMENT SB acts as a custodian of foreign exchange reserve Manages exchange control Fixing value of Rupee with foreign currencies Check flight in & out of reserves of the country Paying off external debts Correct adverse BOP (balance of payments) Agent of Government in respect of Pakistan’s membership with IMF, World Bank etc 5. SB AS A CLEARING HOUSE: 5. SB AS A CLEARING HOUSE SB acts ac a clearing house for commercial banks A place where representatives of different banks meet each day to exchange cheques drawn on each other & then settle the differences owed to each other SB helps in huge flow of money in less transactions Handles other problems in this regards 6.ADVISER TO GOVERNMENT: 6.ADVISER TO GOVERNMENT SB acts as an advisor to Government in all financial matters As SB is involved directly in money, foreign exchange markets, inflation etc so gives advices to Govt : Gives advice on all monitory & It also provides advices to Commercial banks Other financial institutions Commerce & trade Industry 7. BANKER & AGENT TO GOVERNMENT: 7. BANKER & AGENT TO GOVERNMENT SBP acts as an agent & banker of Government It receives deposits, cheques & drafts on behalf of Government and deposited in government account It pays on behalf of Government SBP gives short term advances to Government It provides foreign exchange to Govt ; to purchase goods & repay external debts It collects taxes from banks and individual accounts on behalf of Government 8.LENDER OF LAST RESORT: 8.LENDER OF LAST RESORT SBP is the lender of last resort for the commercial banks Anytime, bankers are short of cash reserves, State Bank comes to rescue them It also provides cash to banks by rediscounting bills of exchange and treasury bills Thus helps & maintains liquidity solvency of commercial banks 9. STATE BANK & ECONOMIC GROWTH: 9 . STATE BANK & ECONOMIC GROWTH SBP is playing significant role in facilitating and fostering economic development and growth of financial Market (banks and other F. institutions ) Key role in the development of Capital market (PIBs) Under SB’s Export Finance Scheme, Commercial Banks provides finance to exporters at low rate, & also provide other facilities SB helped in establishing specialized credit institutions for meeting medium &long term financial needs of various sectors of economy. Specialized credit institutions: Specialized credit institutions Industrial Development Bank of Pakistan (IDBP) SME Bank Limited House Building Finance Company Limited (HBFC) Zarai Taraqiati Bank Limited Investment Corporation of Pakistan (ICP) National Investment Trust (NIT) Equity Participation Fund (EPF) Pakistan Industrial Credit & Investment Corporation (PICIC) OTHER FUNCTIONS: OTHER FUNCTIONS Training facilities to new employees Helping and promoting in Islamic Banking Target of credits to commercial banks in field of agriculture, industry and housing Assistance to Specialized Financial Institutions Annual reports on development and different sectors of economy Conduct different surveys THANKS: THANKS ANY QUESTION ?