Current account deficit doubles

There is a need to contain current account deficit which has been doubled compared to last year, to manageable levels to sustain external sector stability.
State Bank of Pakistan said in its second quarterly report released on Friday for Financial Year 2017 on the State of Pakistan’s Economy. The Report says that the overall economic environment remains conducive for growth, on the back of accommodative monetary policy, increase in development spending, and CPEC-inspired activities.

However, the current account deficit has almost doubled compared to the last year. This was due to a surge in growth-inducing imports along with non-realization of CSF and decline in exports and remittances. On an encouraging note, the Report acknowledges that the foreign inflows – FDI, loans, and Sukuk issuance – were little more than sufficient to finance higher current account deficit
The Report has also noted the improvements in investors’ confidence as reflected in an uptick in private sector credit, especially for fixed investment purposes; foreign interests in Pakistani companies; and increased production of consumer durables.

Similarly, a surge in import of machinery and raw materials also points to a robust industrial activity and buildup of future productive capacity.
According to the Report, the growth in Large-scale Manufacturing (LSM) recovered in Q2-FY17 with increase in production of food, cement, steel, pharmaceuticals, automobiles, and electronic industries. The growth in agricultural sector is also expected to rebound on account of higher production of cotton, sugarcane, and maize and increased prospects for wheat harvest close to last year after rains in early February 2017.

The Report also notes that fiscal deficit has increased due to low revenue generation amid higher development and security related spending. While the Report terms sustained increase in development spending commendable, it also underscores the need to enhance revenue collection.

The Report shows that average CPI inflation has risen from 2.1 percent in H1-FY16 to 3.9 percent as in H1-FY17 which reflects higher domestic demand and an increase in global commodity prices. However, it highlights that on year-on-year basis, the CPI inflation has fluctuated in a narrow range during this period.
Finally, the Report perceives the growth to maintain the upward trajectory while inflation to remain below the target during FY17.

Published in Pakistan Observer, April 1st,2017

Banks advised to encash deposits under national DEBT retirement program

The State Bank of Pakistan has advised the commercial banks to facilitate the claimants of depositors under national debt retirement program and encash the deposits after due verification in accordance with respective rules & procedures. The banks after making the payments will claim reimbursement from SBP against the deposit of paid documents and instruments etc. It has come to our notice that some of the deposits with banks under NDRP-II are pending or still unpaid. All such depositors may approach their respective branch of banks along with the original receipt/certificate for encashment of their deposits under NDRP-II (Qarz-e-Hasna).

It may be recalled that Government of Pakistan launched National Debt Retirement Program (NDRP) with a view to discharge the ever increasing national debt liabilities. Amounts in NDRP were to be accepted from an individual, firm, company, body and institutions etc. under the categories of Donations (NDRP-I); Qarz-e-Hasna (NDRP-II) and Term Deposit (NDRP-III)
The deposits under NDRP-I (Donations) were non-refundable whereas deposits under NDRP-II and NDRP-III were for a minimum period of two years.

Depositors were issued a receipt/certificate against deposits under NDRP-II by banks and Special Saving Certificates (SSC) /Defence Saving Certificates (DSC) were issued against deposits under NDRP-III by Central Directorate of National Savings, Ministry of Finance.

Published in Pakistan Observer, March 31^st, 2017

SBP Dy Governor for managing risks to financial sector’s stability

Deputy Governor, State Bank of Pakistan, Riaz Riazuddin has emphasized on managing the risks to stability of the financial sector for maintaining uninterrupted availability of financial services, raising investors’ confidence and enhancing reach of financial access to potential areas. He has stressed upon the need for putting in place effective financial stability framework and enhancing the cross boarder supervisory corporation.
Riazuddin was addressing the inaugural session of the seminar on “Financial Stability” being hosted by the State Bank of Pakistan (SBP) from 27th to 28th March, 2017 under the auspices of SAARCFINANCE Forum at National Institute of Banking and Finance (NIBAF), Islamabad. The SAARCFINANCE is a network of Central Bank Governors and Finance Secretaries of the SAARC region established to share experiences on macroeconomic policy issues among member countries including Pakistan, India, Bangladesh, Sri Lanka, Bhutan, Maldives, Nepal and Afghanistan.

The seminar on Financial Stability was attended by around 40 mid to senior level officials from five central banks of SAARC member countries and Securities and Exchange Commission of Pakistan (SECP). Local and foreign financial sector experts from Pakistan, multilateral agency and foreign banks shared views on topics related to financial stability and the role of central banks and financial institutions.

While welcoming the participants, Amer Aziz, Managing Director, NIBAF, highlighted the facilitating role played by NIBAF, in collaboration with SBP, in arranging such seminars. He stressed upon the participants to engage in lively discussions with the speakers and among themselves to gain maximum benefits from the seminar on “Financial Stability”. Jameel Ahmad, Executive Director, State Bank of Pakistan then provided an overview of the International Regulatory Reforms post Global Financial Crisis (GFC) followed by a detailed account of measures taken by SBP for strengthening the Financial Stability Framework in Pakistan.

Gabi Afram of the World Bank Group explained the importance of having a well-established institutional framework for “Bank Resolution and Crisis Management”. Usman Hayat, Executive Director, SECP shared experience in handling past capital market shocks and the measures being adopted for managing the risks associated with the equities markets. The ensuing sessions focused on market perspective of financial stability.

Ms Felicity Macdonald, Senior Manager Resolution Planning – Standard Chartered Bank, UK shared perspective on Recovery and Resolution of G-SIBS in the context of UK, while Faraz Haider, Group Chief, National Bank of Pakistan provided perspectives of the domestic market participants on Financial Stability. Qasif Shahid of Finja Pvt. Limited offered insights into the expanding phenomenon of “FinTech” and the opportunities and challenges it offers for the financial industry and the regulators.

Published in Pakistan Observer, March 29^th, 2017

Banking industry driving force for economy: Governor SBP

Ashraf Mahmood Wathra, Governor State Bank of Pakistan has said that the financial sector plays a pivotal role in determining the overall economic growth and development of a country. Ashraf Mehmood Wathra while addressing at the launching ceremony of the 2nd Pakistan Banking Awards 2017 said that banking sector of Pakistan has been very fundamental for the development of the economy.

Its role can never be undermined while technology based services and performance achieved by the sector is laudable He said that the contribution and achievements of the institutions contributing to this sector should be recognized and acknowledged. After the tremendous success of the 1st Banking Awards in 2016, I am delighted to address this distinguished gathering of executives and academicians from the banking and finance sector,” Wathra added.

The SBP Governor said that these prestigious awards are now an annual event, to encourage new entrants to make their mark while motivating the established institutions to strive for excellence. Awards are given to individual banks based on their performance, broadly in the developmental, financial, and customer service related spheres.” Wathra appreciated the role of Institute of Bankers Pakistan (IBP), A.F.

Ferguson & Co (AFF) for organizing “PAKISTAN BANKING AWARDS 2017” on a continuous basis. The CEO IBP Hussain Lawai said, “The Pakistan Banking Awards 2017 would serve as a platform to promote, recognize and acknowledge the contribution of the banking industry towards enhancing Pakistan’s economy.

Our jury comprises of people who possess relevant expertise and are undoubtedly institutions in themselves. Like before they would adopt transparent and impartial evaluation process to select the best performers for this year’s Awards,” he added. Jury for Pakistan Banking Awards 2017comprises of Syed Salim Raza- Former Governor, State Bank of Pakistan;Azhar Hamid- Former Banking Mohtasib Pakistan & Former Country Head, SCB Pakistan; Feroz Rizvi- President & CEO Pakistan Institute of Corporate Governance;Dr. Zeelaf Munir – MD & CEO English Biscuit Manufacturers Pvt. Ltd. and Shehzad Naqvi- Former Regional Head of Citibank Middle East and Pakistan.

Meanwhile reprenstative from A.F. Ferguson & Co (AFF) PWC presented 8 award categories including Bank the Unbanked Award, Best MicroFinance Bank, Best Bank for Small Businesses and Agriculture, Best Bank for Corporate Finance & Capital Market Development, Best Customer Franchise, Best Islamic Bank, Best Environmental, Social and Governance (ESG) Bank and last, but not the least, the Best Bank.

Published in Pakistan Observer, March 28^th, 2017

State Bank of Pakistan keeps interest rate unchanged

The State Bank of Pakistan in view of the low inflation rate has decided to keep the policy rate unchanged at 5.75 percent. According to Monetary Policy Review issued Saturday the inflation rate in the current fiscal year is expected to remain well anchored. This has been largely due to the near-absence of any major supply side pressures.

However, rising real incomes in a low interest rate environment since FY14 are indicating signs of pick up in domestic demand, which is broadly reflected in the core inflation measures. Going forward, improving consumer confidence, as depicted by IBA-SBP Consumer Confidence Survey of March 2017, indicates further increase in consumer demand. Hence, barring any major cost shocks, domestic demand will define the underlying trend of headline inflation in FY18.

The real economic activity continues to gather pace at the back of better agricultural output, increase in key Large-scale Manufacturing sectors, and a healthy uptick in the credit to private sector. This expansion is helped by a range of factors including low cost of inputs, upbeat economic sentiments, improved energy supplies, and CPEC related investments. As a result, GDP growth is expected to further improve in FY17.

Also, prudent monetary policy stance has translated well into low and stable market interest rates, which incentivized private sector to borrow from commercial banks to finance their businesses and investment activities.

Accordingly, private sector credit increased by Rs 349 billion during Jul-Feb FY17 as compared to Rs 267 billion in the same period last year. Fixed investment category led to the rise in private sector businesses loans by posting Rs 159 billion uptick during this period, compared to Rs 102 billion last year. Similarly, consumer financing continued the uptrend in the first eight months of the current fiscal year. Improved interbank liquidity conditions also spurred the growth in private sector credit.

This was led by both net government retirement to commercial banks and a decent increase in bank deposits compared to the withdrawals seen last year. Furthermore, interbank liquidity was managed well with calibrated open market operations that kept the weighted average overnight repo rate close to the policy rate. The expansion in economic activity has also translated into significant increase in imports, which along with lack of any sustained improvement in exports and a small decline in remittances has pushed the current account deficit to US$ 5.5 billion during Jul-Feb FY17.

While net financial flows remained higher, these were not sufficient to finance the current account deficit. However, accounting for positive impact of the recent policy measures to augment exports and check non-essential imports, the current account deficit may be contained in the coming months. Also, continuation of the financial inflows, CPEC related imports, and any major fluctuation in the global oil price will determine the overall position of the external sector in FY18.

Published in Pakistan Observer, March 26^th, 2017

Banks dispose 0.772mln consumer complaints

KARACHI: Banks managed to address almost all the consumer complaints received during the past year, the central bank said on Tuesday.

The State Bank of Pakistan (SBP), in its maiden banking conduct survey report, said banks received 0.781 million complaints from consumers and disposed 0.772 million in 2016.

“Empirically, the banks themselves handle and dispose of around 98 percent of the total consumer complaints whereas only two percent are escalated to Banking Mohtasib of Pakistan, SBP, courts, etc,” it added.

“The quantum of complaints being received and handled at banks makes them a crucial arena of redressal for consumers.”

The report was based on stock taking from the 50 banks and development finance institutions through a questionnaire focusing on the regulatory expectations regarding the following key drivers affecting complaint handling at the banks.   

     

Last year the State Bank of Pakistan  issued consumer grievance handling mechanism (CGHM) to banks. “It was encouraging to observe that around 74 percent of the respondents have revamped their complaint handling policies in 2016 signaling incorporation of the standards issued under consumer grievance handling mechanism,” said the Bank.

Eighty six percent of banks have explicit policy on complaint handling. In 2016, private banks received 80 percent of consumer complaints, followed by Islamic banks (nine percent) and public sector banks (nearly eight percent).    

  

Seventy eight percent of respondent banks have a full-fledged department for complaint handling.  “It was also promising to note the change in reporting lines from business nodes to non-business/independent units like service quality,” the Bank said. 

Banks are required to put in place a complaint handling policy and delineate detailed procedures to deal with complaints for persistency and accountability. The SBP expects banks to address the possibility of conflict of interest, while adopting relevant structure of complaint handling function. 

“It is expected that banks as per their clientele will develop and enhance complaint lodgment modes,” the SBP said. The survey found that a total of 343 employees/officers exclusively work on complaints.

As per the complaints numbers provided by the banks, a complaint handling officer on an average dispose of at least nine complaints per day along with investigating other complaints, which appear to be on higher side defined in consumer grievance handling mechanism.

It further found that 60 percent of the banks have complaint management system (CMS).  “When asked about the structure and integration of complaint management system, out of the 30 banks that have CMS, 60 percent asserted to have CMS that is integrative and can be used by branches, call centre, higher management, etc,” it said. 

The survey found that most common exclusion from the scope of consumer complaints is human resource issues. Likewise, exclusions of complaints lodged through unregistered numbers suggest a possible inconvenience for the consumers. “Non-inclusion of auto teller machine claims under complaints is also non-conducive to the essence of effective and responsible complaint handling,” the bank said.

 Published in The News, March 29th,2017

Govt mulls doubling banking transaction threshold to Rs100,000

KARACHI: The government has agreed to double the minimum limit of daily banking transaction by non-filer liable to additional withholding tax to Rs100,000 in the next budget, central bank governor said on Monday.  

  

“The finance ministry and the Federal Board of Revenue agreed to increase the banking transaction threshold from the existing Rs50,000 per day to Rs100,000 for charging withholding tax in the upcoming budget of 2017/18,” said Ashraf Mahmood Wathra, Governor of the State Bank of Pakistan (SBP).

The government, in the budget 2015/16, introduced 0.6 percent withholding tax on non-cash banking transaction of Rs50,000 per day, made by a non-filer of income tax returns to bring them into the tax net. The rate was, however reduced to 0.4 percent, which is applicable till March 31.

Wathra, at a meeting with the members of the Karachi Chamber of Commerce and Industry, strongly rejected the demand of business community to review 100 percent cash margin requirement on various imported items. The items were selected after thorough deliberations, he added. “Instead of spending foreign exchange on import of non-essential items there is need to spend (it) on import of capital goods.”

The government recently bounded importers to deposit 100 percent foreign currency value of imported items as a measure to reduce the ballooning trade deficit. 

SBP governor said the saving from lower international oil prices was transferred to the import of non-essential items.

On a query raised by Siraj Kassam Teli, chairman of businessmen group related to amnesty scheme for money held by Pakistanis abroad, he said a permanent amnesty on bringing foreign exchange into the country is available. “Nobody will ask a person to bring foreign exchange into Pakistan.” 

He said the Indonesian model of whitening black money emerged successful as the country had a comprehensive database of individuals. 

“Unfortunately, Pakistan had no such database,” he added. “However, with the implementation of OECD (Organisation for Economic Cooperation and Development) convention, Pakistan would be able to have such information from 2018.”

SBP governor said except in some refinancing schemes introduced by the central bank, participation of businessmen generally remained lacklustre. 

He, however, expressed surprise over a substantial increase in loan under export financing scheme available at three percent despite falling exports. “Nobody knows where the money is going… either in the stock market or in the real estate business,” he said.

Governor Wathra also criticised the monopoly of some businessmen in the exports sector. “New breed should come as old exporters have earned much money,” he said. “New markets and techniques should be adopted to spur export growth.”

The governor said the law and order situation has improved during the past three years. The government has cut the tariffs of utilities for industry. “This has resulted in a significant growth in private sector’s credit off-take.”

On Export-Import Bank, Wathra said the SBP is coordinating with the finance ministry and recently sought a technical assistance from the Asian Development Bank. He said the negotiation is at an advance stage. The government published an advertisement to appoint chief executive officer of the bank.

He said formal bilateral trade between Iran and Pakistan will start with the signing of a final draft. The SBP has also relaxed certain conditions on trade with Afghanistan.

Published in The News, March 28^th, 2017

Banks’ role in determining economic growth termed vital

KARACHI: The central bank governor on Monday lauded the banking sector performance and termed it an engine of economic growth.

Addressing the second Pakistan Banking Awards 2017, held at the Institute of Bankers Pakistan (IBP) premises, State Bank of Pakistan (SBP) governor Ashraf Mehmood Wathra said that the contribution of financial institutions to the country’s development and prosperity should be recognised.

“The financial sector plays a pivotal role in determining the overall economic growth and development of a country,” he added. These prestigious awards are now an annual event, encouraging new entrants to make their mark, while motivating the established institutions to strive for excellence, Wathra said.

“(The) awards are given to individual banks based on their performance, broadly in the developmental, financial, and customer service-related spheres,” he added. These awards honour and promote the efforts of banks for developing new and innovative products and services, while giving them the incentive to enhance their performance for the coming year.

“They encourage active participation of banks by setting the benchmark and allowing them to gauge their standing within the industry,” the central bank governor said. “Most importantly, they inculcate a spirit of healthy competition, as the awards are a great source of pride for the winning institutions.”

IBP chief executive officer Hussain Lawai said, “The Pakistan Banking Awards 2017 would serve as a platform to promote, recognise and acknowledge the contribution of the banking industry towards enhancing Pakistan’s economy.”

“Our jury comprises people who possess relevant expertise and are undoubtedly institutions in themselves. Like before they would adopt transparent and impartial evaluation process to select the best performers for this year’s awards,” he added.

Jury for Pakistan Banking Awards 2017 comprises Syed Salim Raza, former governor, SBP; Azhar Hamid, former banking Mohtasib Pakistan; Feroz Rizvi, president of the Pakistan Institute of Corporate Governance; Dr Zeelaf Munir, CEO of English Biscuit Manufacturers; and Shehzad Naqvi, former regional head of Citibank Middle East and Pakistan.

Meanwhile, a representative from AF Ferguson & Co presented awards in eight categories, including bank the unbanked award, best microfinance bank, best bank for small businesses and agriculture, best bank for corporate finance and capital market development, best customer franchise, best Islamic bank, best environmental, social and governance (ESG) bank and the best bank.

Published in The News, March 28^th, 2017

SBP keeps policy rate on hold at 5.75pc with eyes on inflation

KARACHI: Central bank kept its policy rate on hold at 5.75 percent for the fifth straight meeting on Saturday, opting to wait for more clarity on the trend for rising inflation that increased at the fastest pace in almost two years.

“The Monetary Policy Committee of SBP has decided to keep the policy rate unchanged at 5.75 percent,” the State Bank of Pakistan (SBP) said in a statement issued after a policy review meeting for March-April period.    

The central bank has left its main policy rate intact at 5.75 percent since May 2016.

Analysts said the widely expected move could put some pressure on the country's languishing currency.

The SBP flagged up improvements in the economy and business sentiments, but said the inflation outlook for the next fiscal year, starting on July 1, seemed a little uncertain, as rising real incomes in a low interest rate environment since FY14 indicated signs of pick up in domestic demand, which is broadly reflected in the core inflation measures. 

        

The SBP said inflation expectations in the current fiscal year continue to remain well anchored. This has been largely due to the near-absence of any major supply side pressures.

“Going forward, improving consumer confidence, as depicted by IBA-SBP Consumer Confidence Survey of March 2017, indicates further increase in consumer demand,” it said.

“Hence, barring any major cost shocks, domestic demand will define the underlying trend of headline inflation in FY18.”

The consumer price inflation rose 4.2 percent in February from 3.7 percent in the previous month.  

The central bank projected inflation would hover at 4.5-5.5 percent, lower than the target rate of 6.0 percent in FY17.  

The policy statement said the country was on track to meet the target of achieving stable economic growth this fiscal year.

It said the real economic activity continues to gather pace at the back of better agricultural output, increase in key large-scale manufacturing sectors, and a healthy uptick in the credit to private sector.

“This expansion is helped by a range of factors, including low cost of inputs, upbeat economic sentiments, improved energy supplies, and CPEC related investments. As a result, the GDP growth is expected to further improve in FY17,” it said.

The SBP said prudent monetary policy stance translated well into low and stable market interest rates, which incentivised private sector to borrow from commercial banks to finance their businesses and investment activities.

Private sector credit increased by Rs349 billion during July-February FY17 as compared to Rs267 billion in the same period last year. The fixed investment category led the rise in private sector business loans by posting Rs159 billion increase during this period, compared to Rs102 billion last year.

Consumer financing too continued the uptrend in the first eight months of the current fiscal year. Improved interbank liquidity conditions also spurred the growth in private sector credit.

“This was led by both net government retirement to commercial banks and a decent increase in bank deposits compared to the withdrawals seen last year,” the statement said.

The bank said interbank liquidity was managed well with calibrated open market operations that kept the weighted average overnight repo rate close to the policy rate.

“The expansion in economic activity has also translated into significant increase in imports, which along with lack of any sustained improvement in exports and a small decline in remittances has pushed the current account deficit to $5.5 billion during July-February FY17,” it added. “While net financial flows remained higher, these were not sufficient to finance the current account deficit.”

However, accounting for positive impact of the recent policy measures to augment exports and check non-essential imports, the current account deficit may be contained in the coming months.

The policy statement also indicated some uncertainties about the prospects of the balance of payments in the fiscal year to come.   

“Also, continuation of the financial inflows, CPEC related imports, and any major fluctuation in the global oil price will determine the overall position of the external sector in FY18,” it mentioned.

Published in The News, March 26^th, 2017

SBP allows non-resident investors to conduct margin trading

KARACHI: The State Bank of Pakistan (SBP) on Friday allowed non-resident investors to conduct shares margin trading in order to increase trading volumes and inflows in the equity market. 

“It has been decided to allow movement of funds from SCRA (special convertible rupee account) towards margin requirement for ready/cash market transactions in the Pakistan Stock Exchange,” the SBP said in a notification. 

Analysts said the decision followed permission to non-resident investors to conduct margin-based trading.

Earlier, fund transfer from SCRA to meet margin requirement for ready/cash market transaction was not permitted.

Analyst Ahsan Mehanti at Arif Habib Limited said the fresh measure is positive to increase market depth as well as trading volumes at the bourse.

“Earlier, non-resident investors had to pay 100 percent value of the shares they bought,” Mehanti said. “Now they can conduct margin based trading, which would enhance their investment scope.”

Non-residents are allowed to trade in the shares quoted on the local bourse through SCRA opened in local banks. Such accounts are fed by remittances from abroad or transfer from a foreign currency account maintained by the non-resident investor in Pakistan.

The SBP also allowed pledging of securities held in the Central Depository Company’s (CDC) account of non-residents as an alternative to cash to meet margin requirements. 

“The securities available in account/sub-account may be pledged in favour of the National Clearing Company of Pakistan Ltd in case of non-availability of funds in SCRA to meet margin requirements against purchase and sale transactions of non-resident investors in ready/cash market till settlement of respective transaction,” said the SBP’s notification.

Separate account or sub-account is to be opened and maintained at CDC for each nonresident investor, eligible for investment in securities quoted on a local bourse.

Chief commercial officer Khurram Schehzad at JS Global Capital said this would encourage foreign investment in the capital market.

“These facilitation measures would provide non-resident investors with more options and encourage inflows,” Schehzad said.

The outstanding amount of margin financing stood at Rs14 billion as on December 2016. Foreign investors, both individual and institutions, hold more than 30 percent of free-float, which is around 24 percent of market capitalisation of $90 billion. 

   

Pakistan Stock Exchange emerged as the best performing stock market in Asia and 5th best in the world in 2016 with the benchmark KSE 100-share Index gaining 43.05 percent.

Analysts said the country’s capital market is expected to continue its upward trend and deliver a healthy double-digit return in 2017. 

The view is premised on robust double digit corporate earnings growth, expected foreign inflows as a result of the bourse’s up-gradation to Morgan Stanley Capital International Emerging Market Index, proceeds from PSX divestment, a likely introduction of new margin financing product and attractive valuations, they added.

Published in The News, March 25^th, 2017

Banks advised to prepare three-year plan for strengthening presence in Balochistan

KARACHI: The State Bank of Pakistan (SBP) on Monday advised banks to prepare at least a three-year plan to strengthen their presence in Balochistan by taking concrete steps to increase financing under the concessional schemes and to promote businesses in the province, a statement said.

All banks are needed to take measures to increase the number of branchless banking agents, branchless banking accounts and ATMs in the province; open branches in underserved districts of the province, said Ashraf Mahmood Wathra, governor of the central bank, during a meeting with the heads of commercial banks in Quetta.

He also asked the banks to increase financing, particularly in the concessional finance schemes of the SBP and the government, and, maintain continued focus on anti-money laundering and combating the financing of terrorism risks.

“The aforementioned steps have been identified to increase the footprint of the banking industry in the province of Balochistan for achieving the SBP’s strategic goal (2020) of enhancing the financial inclusion in country,” Wathra added.

He sensitised the chief executive officers (CEOs), of the banks on continued improvement in security situation in Balochistan, realisation of projects under theChina-Pakistan Economic Corridor (CPEC), development of Gwadar Port and untapped natural resources, which together offer tremendous opportunities for growth and employment.

The SBP’s governor, in continuation of his earlier engagements with the banking industry and different chambers of commerce and industry, invited all leading bank CEOs for a meeting in Quetta.

These engagements are aimed at understanding, at firsthand, issues being faced by the industries of specific areas; assessing the efficiency of intermediary function performed by the banks, and addressing the limitations encountered by the banks in effectively performing their intermediary function.

“The State Bank of Pakistan is cognizant of the fact that the private sector lending is picking up, on account of, improved security situation and better availability of energy,” Wathra said. “However, a lot needs to be done, particularly, in areas, which have remained marginalised, to ensure that the economic growth is inclusive and its benefits are shared by all stakeholders.”

Later, the SBP governor also met the president, vice presidents, other office-bearers and members of the Quetta Chamber of Commerce and Industry (QCCI). During the meeting, the governor informed business community about the SBP’s efforts to promote microfinance, agri-credit and SME financing in Balochistan.

“Earlier this morning, we have gathered presidents / CEOs of all banks in Quetta to express our resolve to facilitate Balochistan’s business community. I have urged them to take measures to increase financing to priority sectors in the province,” Wathra said.

The governor said in the light of agriculture credit advisory committee’s recommendations, specific targets are being allocated to the banks for underserved / underdeveloped areas. Likewise, given the importance of the SMEs in the country, particularly in Balochistan, the central bank would set province-wise SME financing targets from the current year, he added.

Wathra expressed the hope that this would spur growth in the province. The governor also underscored the importance of national financial inclusion strategy for deepening of financial inclusion as the SBP’s key strategic vision.

“Improved law and order condition coupled with the CPEC in place, development of Gwadar Port and greater trade with neighbouring countries will bring real prosperity to Balochistan and create new business opportunities and job creation,” he said.

The Quetta Chamber of Commerce and Industry would handhold local businesses, making them bankable so that they as exporters make best use of the SBP’s export finance schemes, he added.

Urging the Quetta Chamber to play its due role in creating awareness about Islamic banking, the SBP governor assured the chamber representatives of the support in various activities for dissemination of various incentive schemes, in particular and, other schemes, in general.

Published in The News, March 21^st, 2017

Current account deficit widens 120.50 percent to $5.473 billion

KARACHI: The country’s current account deficit more than doubled to $5.473 billion in the eight months of the current fiscal year of 2016/17, mostly on the back of high import growth and contraction in remittances, the central bank data showed on Monday.

The current account deficit was $2.482 billion in the same period a year ago. “The balance of payments figures are worrisome, as it recorded a whopping 120.50 percent year-on-year surge in July-February FY17, intensifying concerns that there will be a pressure on external account this year,” an analyst said.

“We signify a considerably weaker balance of payments than the last fiscal year.” However, the twice collation support fund (CSF) receipts provided a relief to the weakening balance of payments,” the analyst said.

The State Bank of Pakistan (SBP) reported that the current account deficit was equivalent to 2.6 percent of the gross domestic product, up from 1.3 percent during the corresponding period of the last fiscal year.

The latest balance of payment numbers might not be a shocking reading for many analysts. They had already predicted the current account gap to surpass $5 billion mark in the eight months of this fiscal year due to growing trade imbalances.

The exports fell 3.90 percent to $13.318 billion in July-February FY17, while imports jumped 16 percent to $33.520 billion. That took the total trade deficit to $20.202 billion for the eight months of this fiscal year, up from $15.039 billion in the corresponding period of July-February FY16.

The widening current account deficit was also driven by a rise in overall balance on trade and goods and services, which soared to $17.381 billion as compared to $13.937 billion last year.

Besides, the fall in workers’ remittances and a meager growth in foreign direct investment added to the current account deficit. Remittances flows declined 2.47 percent to register $12.363 billion in July-February FY17.

The country attracted $1.284 billion in foreign direct investment, showing a six percent increase over the same period of FY16. Most analysts, including the central bank, are expecting an increase in the current account deficit as imports continued to record high growth and the hope for boost to exports from the fiscal package has dried.

Moreover, the rising external debt servicing obligations continued to put pressure on the foreign exchange reserves. Some economists foresee the FY17 current account deficit may exceed $6.7 billion.

Pakistan’s forex reserves increased $122 million to $22.274 billion as of March 10 due to $200 million received from the US under the head of coalition support fund, taking the total inflows to $500 million.

The CSF proceeds are crucial for reducing the current account deficit, but have been erratic in the last few years and with the Trump administration now in control, may be termed uncertain.

The current account deficit narrowed to $744 million in February as compared to $1.202 billion in the previous month. An analyst at Topline Research in his report issued last week noted the current account deficit in FY17 widens, but will remain manageable this year and next year.

“We are revising up our current account deficit forecast to $6.6 billion from the previous $4.7 billion.” “Given higher CAD, we are revising down our FY17 year-end forecast of foreign exchange reserves to $22-23 billion from the previous estimate of over $25 billion,” he said.

The report estimates goods exports to stand at $21.1 billion and the realisation of budgeted CSF inflows of $1.1 billion (received $500 million) should help alleviate some pressure on the external account.

Further, amnesty scheme for foreign ownership of assets could help realise around $1 billion. But analysts are unanimous that the government needs to focus on supply side efficiencies (for the external sector) and revenue generation (for fiscal management).

Published in The News, March 21^st, 2017

SBP issues draft framework on risk management

KARACHI: The State Bank of Pakistan (SBP) on Tuesday issued draft framework on IT governance and risk management that will work as guidelines for banks and other financial institutions.

The framework is based on international standards and recognised principles of international practice for technology governance and risk management and will serve as the SBP’s base-line requirement for all financial institutions.

“It aims to provide enabling regulatory environment for managing risks associated with use of technology,” said the SBP.

The framework will apply to all financial institutions, which include commercial banks, Islamic banks, development finance institutions (DFIs) and microfinance banks. The framework is not one-size- fits-all and the implementation of the same will be risk-based and commensurate with size, nature and types of products and services and complexity of IT operations of the individual financial institutions, said the SBP.

Instructions are focused on enhancing the proactive and reactive environments in financial institutions to various facets and dimensions of IT, security, operations, audit and related domains, it said.

Financial institutions are expected to assess and conduct a gap analysis between their current status and the guidelines and draw a time-bound action plan to address the gaps and comply with the guidelines.

The SBP invited interested parties and institutions/individuals from the banking sector, IT industry, academia and other stakeholders to review the proposed draft framework and provide feedback.

Published in Dawn, March 15th, 2017

SBP snubs assemblers over criticism of 100pc cash margin on imports

KARACHI: Three top assemblers (by sales and production) cumulatively held Rs67.2 billion ($650.7 million) in cash, bank balance and short-term investments by Sept 30, 2016, the State Bank of Pakistan (SBP) said on Saturday.

The SBP was responding to criticism by the Pakistan Automotive Manufac­turers Association over imposition of 100 per cent cash margin on imports.

The central bank maintained that given this cash cushion, the industry should not face any undue financial burden in putting up 100pc cash margin at the time of opening letters of credit (LCs).

The SBP believes that local car industry’s cash flow has benefitted tremendously from the longstanding practice of charging advance payments from customers. “Assemblers collect up to 100 per cent advance payment from customers, months ahead of actual delivery of vehicles. This is even true for corporate clients (including state institutions like SBP),” the central bank said.

Sources said local car assemblers park the cash received from customers in bank accounts and other short-term government securities for at least three to four months, besides financing future imports of raw materials and procurement from local vendors.

Pak Suzuki Motor Company Limited charges Rs200,000 on advance booking followed by Rs1 million by Honda Atlas Cars while the Indus Motor Company (IMC) books vehicles with Rs500,000 to Rs1m depending on engine power.

Going through the balance sheets of assemblers, advances from customers and dealers of IMC stood at Rs17.5bn for the half year ending Dec 31, 2016 (unaudited). The amount ending June 2016 was Rs19.1bn (audited).

For the period ending Sept 30, 2016 (unaudited), Pak Suzuki had the amount of Rs1.267bn while during the period ending Dec 31, 2015 (audited) stood at Rs4.22bn.

Advance of Honda Atlas for the period ending Dec 31, 2016 stood at Rs6.64bn.

Sources said the balance sheet shows net cash position of IMC at Rs23bn as on Dec 31, 2016, while net cash position of Honda Atlas Cars on Sept 2016 was Rs16bn. Pak Suzuki had net cash of Rs11.4bn for the period ending Sept 30, 2016.

A healthy net cash position may allow assemblers to enhance capacities depending on the market demand and supply situation, the sources added.

The recent demand is also attributed to bank financing at attractive rates against their auto loan policies.

IMC claims to have started auto policy’s benefits specially meant for its convenience. However, the government is yet to legislate crucial parts of the policy.

Under the ‘Consumer Welfare’ section of The Auto Policy 2016-21, a few features specifically relate to the purchase experience of the customer.

The policy stipulates that automakers do not accept more than 50 per cent prior payment for booking the vehicle.

Furthermore, if the delivery exceeds two months from the communicated delivery date, interest payments amounting to Kibor +2pc are to be made to the customers on the amount paid for the bookings.

This was done mainly to encourage early delivery of vehicles and also to ensure customers get some form of compensation to offset the opportunity cost of booking as opposed to immediate delivery. As per the policy, the law was to be formalised through an SRO that would enforce it as a binding on the auto industry to follow this norm.

Interestingly, to date no SRO has come from the government that mandates this consumer welfare practice.

Notwithstanding the lack of legal formality, IMC, the assembler and distributor of Toyota vehicles has voluntarily commenced making late delivery payments to customers. The company is presently facing robust demand for its vehicles such as the newly introduced Toyota Fortuner SUV and the Hilux Revo Pickup and its flagship product Toyota Corolla that continues to outperform the market.

IMC Chief Executive Officer Ali Asghar Jamali said in view of extraordinary demand, certain Corolla variants have delivery period in excess of 60 days. The company is compensating all such customers with late delivery penalty payments. However, he clarified that not all Corolla variants have long delivery times; certain models are available within the 60 days’ timeframe.

In 2013, IMC was the first company to introduce the facility of booking vehicles on partial payment, whereby a Toyota vehicle could be booked from as low as Rs 500,000.

However, dealers said the practice of compensating customers with late delivery charges is being followed by Honda Atlas and Pak Suzuki.

Published in Dawn, March 12th, 2017