Chapter 06

MONEY AND CREDIT

6.1 Introduction

The development of financial markets andinstitutions is a critical and inextricable part of theeconomic growth. Financial sector deepening(financial development that includes not only anexpansion in the financial sector, but also animprovement in institutions so that the financialsystem can allocate capital to its more productiveuses more efficiently) and economic growth areempirically linked. In countries with betterfinancial development, an efficient financialsystem ameliorates market distortions and reducesinformation and transaction costs. It thus identifiesand funds good business opportunities, mobilizesdomestic savings, monitors the performance ofbusinesses, enables the trading, hedging anddiversification of risk and facilitates the exchangeof goods and services.

The banking sector of Pakistan was nationalizedand public sector financial institutions wereexpanded during the early 1970s, based on theobjectives of directing banking activities towardsnational socio-economic objectives and ensuringcomplete security of depositor’s funds. Thedominance of the public sector in banking sectorand non-bank financial institutions, coupled withcentralized policies marked with administeredinterest rates, domestic credit controls, highreserve requirements, use of captive bankingsystem to finance large budgetary requirements ofthe government and controls on internationalcapital flows were responsible for deterioration offinancial institutions and their inability to play avital role in economic growth of the country

There has been a remarkable improvement inPakistan’s financial sector as it initiated a broad-

based program of reforms in the early 1990s.Thepace of reforms; however, has increased manifoldsince 2000. Some of the key reforms includedprivatization of a number of financial institutions,rightsizing of banks and Development FinancialInstitutions (DFIs) through restructuring andimprovement in corporate governance bypromoting transparency and disclosure. Otherreforms included strengthening of the legalframework to expedite recovery of stuck-up loansby promulgating a new recovery law, revision ofPrudentialRegulations(PRs)forcorporate/commercial banking to accommodatefour separate categories viz. Risk Management,Corporate Governance, Know Your Customer(KYC), Anti Money laundering and Operations aswell as issuance of separate Prudential regulationsfor SMEs, consumer and agriculture financing.

The healthy competition among banks, lowertaxation and reduction in non-performing loansbrought about a lowering of average interest rate.Banks and financial institutions are free to set theirown lending and deposit rates. As a result ofsuccessful reforms in the financial sector theM2/GDP ratio, which is an indicator of financialdeepening and development has been showingrising trend since 1990-91.M2/GDP ratio hasincreased from 39.3 percent in 1990-91 to 45percent in 2005-06.Credit to private sector/GDPratio is also rising from 21.7 percent in 1990-91 to27.4 percent in 2005-06.

Monetary policy stance of the SBP has undergoneconsiderable changes over the last several yearsswitching from an easy (2000-03) to a broadlyaccommodative stance (2003-04) and then from agradual tightening (2004-05) to an aggressive

85

Economic Survey 2006-07

tightening stance till date. During the fiscal year2006-07, the SBP took several additional policymeasures in different phases as part of monetarypolicy tightening. In the first phase, the SBP raisedthe Statutory Liquidity Ratio (SLR) from 15 percentto 18 percent and Cash Reserve Ratio (CRR) forcommercial banks from 5 to 7 percent. The SBPalso raised the discount rate (policy rate) from 9percent to 9.5 percent. The increase in interest rateswas in conformity with the international risingtrends and these measures were also taken tocurtail the lending ability of the commercial banksto the private sector. It aimed to curb strongdomestic demand that was one of the main drivingforces for fueling inflation

As a result of tight monetary policy pursuedduring the year, the credit growth to private sectorslowed considerably from 19.8 percent during Jul-May 12 last year to 12.4 percent in the current year--the slowest credit growth in the last four years.The volume of credit also declined substantially inthe same period clearly suggesting that the policystance has considerable success in shaving offexcess demand in the economy. The disaggregateddata shows that the impact of tight monetarypolicy was felt considerably in textiles, cement,commerce and personal loans. However, otherfactors also contributed to slower growth inprivate sector credit during the current fiscal yearthat included the availability of non-bank financeto private sector including credit from non-banking financial institutions (NBFIs); availabilityof foreign private loans and issuance of corporatebonds in international capital market by privatesector companies; mergers and acquisition in thebanking industry; and continuous monitoring bythe SBP of the personal loans not being used forspeculative activities.

Notwithstanding a considerable slower growth incredit to private sector during the year, the overall,money supply (M2) grew sharply to 14 percent asagainst a growth of 12.1 percent in the same periodlast year for a variety of reasons. Most importantfactor that contributed to an increase in moneysupply was a sharp increase in net foreign assets

86

(NFA) of the banking system owing to theconsiderable improvement in the country’sexternal balance of payments. A highergovernment borrowing for budgetary support wasyet another reason for sharper increase in moneysupply. The SBP’s support to export sector alsocontributed to a relatively sharper increase inmoney supply during the year.

6.2 Credit Plan 2006-07

The State Bank of Pakistan prepared the CreditPlan for the year 2006-07 with a view tomaintaining price stability and promotingeconomic growth. In the light of continued tightmonetary policy the Credit Plan for the year 2006-07 projected broad money expansion at 13.6percent (Rs.459.9 billion).This projection was basedon targeted GDP growth of 7 percent and inflationtarget of 6.5 percent. The monetary expansion waskept marginally below the projected nominal GDPgrowth over 14 percent in view of monetaryoverhang that has built up from excessive yearlymonetary expansion since 2002-03(18 percentaverage annual growth during FY 03 to FY 06) andrising inflation. The projected monetary expansionduring FY 07 was expected to result primarilyfrom the build up in the net domestic assets (NDA)(Rs.450.1 billion) and a moderate rise in the netforeign assets (NFA) (Rs.9.8 billion).Within theNDA, the government sector was estimated toavail bank credit of Rs.130.1 billion with budgetaryborrowings at Rs.120.1 billion and commodityoperations at Rs.10 billion. Credit to non-government sector was estimated at Rs.395 billionwith private sector absorbing Rs.390 billion andPSEs utilizing Rs.5 billion (Table-6.1)

6.3 Monetary and Credit Development during2006-07

The money supply during Jul-May 12’2007 of thecurrent fiscal year expanded by Rs.477.9 billion or14 percent as against an expansion of Rs358.2billion or 12.1 percent in the same period last year(Table-6.1).The high monetary growth during thisperiod was caused mainly by a sharp rise in netforeign assets of the banking system as the growth

Money and Credit

in net domestic assets of the banking systemaccelerated only slightly. Pakistan has seen largeforeign inflows during the period which hasresulted in an expansion of the NFA of the bankingsystem. The NFA portrayed an expansion ofRs.88.1 billion as against the target of Rs.9.8 billion.The major factors responsible for large foreignexchange inflows included a relatively highergrowth in workers’ remittances and foreigninvestment (both FDI and portfolio), foreigninflows through Global Depository Receipts(GDRs), PTCL privatization proceeds andrelatively slower increase in trade-related foreigncurrency loans.

Table-6.1 Profile of Monetary Indicators

Credit Plan 2006-07 130100

120100

10000

0

395000

390000

5000

0

-75000

450100

9800

45990013.46%

While the increase in NFA reflects theimprovement in country’s external account; thehigher growth in NDA was caused entirely by asharp increase in government sector borrowingsthat more than offset the deceleration in the creditto non-government sector. The NDA of thebanking system registered an expansion ofRs.389.68 billion during Jul-May FY 07 comparedwith Rs.314.38 billion expanded during thecorresponding period of the preceding year. Thesustainability of private sector credit take-off(Rs.273.9 billion) and sizable governmentborrowings for budgetary support (Rs.212 billion)were the major factors responsible for the currenthefty build up in NDA.

(Rs. million)

July-12 May2005-062006-07 63859185496

73466

-8947

-660

344017

339912

5411

-1306

-93493

314383

43822

35820512.08%

212018

-26424

-98

273983

263429

10173

381

-69799

389680

88194

47787413.99%

Source:SBP

1.Net government sector Borrowing (a+b+c)

a .Borrowing for budgetary support

b.Commodity operations

c.Net Effect of Zakat Fund/Privatization

2.Credit to Non-government Sector (d+e+f)

d.Credit to Private Sector

e.Credit to Public Sector Enterprises (PSEs)

f.Other Financial Institutions(SBP credit to NBFIs)

3.Other Items(net)

4.Net domestic assets (NDA)

5.Net Foreign assets (NFA)

6.Monetary Assets(M2)(Growth)

Table-6.2 Monetary Indicators(Growth Rates)

Indicators

Net Bank Credit to Government Sector

Bank Credit to Private Sector

Net Domestic Assets(NDA)

Net Foreign Assets (NFA)

Money Supply(M2)

FY 05

14.6

34.4

22.4

9.2

19.3

FY 06

12.1

23.5

17.1

8.1

15.2

July-12May

2005-06

8.5

19.9

13.5

6.9

12.1

(Percent)

2006-07

22.0

12.5

14.3

12.8

14.0

Source: SBP

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Economic Survey 2006-07

6.4 Analysis of Monetary Indicators

6.4.1 Bank Credit to Government

The net bank credit to the government forfinancing commodity operations and budgetarysupport amounted to Rs.185.5 billion against theannual target of Rs.130.1 billion and netgovernment sector borrowing of RS.63.8 billionduring the same period last year. While credit togovernment for commodity operations declined byRs.26.4 billion, reflecting retirement on thisaccount, credit to government for budgetarysupport swelled to Rs.212 billion against theannual target of Rs.120 billion. According toanalysis, budgetary borrowings from bankingsector till the Jul-Feb FY 07 were less than half ofthat in the corresponding period last year. It wasMarch 2007 onwards that this picture changedcompletely and the budgetary borrowingsexceeded those in the previous year (Fig-6.1).Specifically, during Mar-Apr FY 06, therealization of Euro bond issuance and PTCLprivatizationproceedshadenabledthegovernment to retire most of the budgetaryborrowings from the domestic banking systemduring the period. As these external inflows werenot available to the government in Mar-Apr FY 07;government financed its budgetary requirementsthrough domestic bank borrowings (see Fig 6.1).Within the banking sector, the scheduled banksprovided the bulk of budgetary finance during Jul-May FY 07; sharply in contrast with correspondingperiod last year when the SBP was directlyfinancing the budgetary needs. However, with the

Fig-6.2 Private Sector Credit Grow th

40

30

20

10

0

inflows of receipts from the issuance of Euro bondand other expected external inflows before thecurrent fiscal year, the picture will changesubstantially and government borrowings forbudgetary support may come back to the target forthe year.

Fig-6.1 Quarterly trends in Budgetary borrow ings

Q3

FY 07

Q1

Q3

FY 06

Q1

Q3

FY 05 Q2

Q1

0 50 100 150 200

Q2

Q2

Rs.billion

6.4.2 Bank Credit to Private Sector

Growth in private sector slowed from 19.85percent during July-May FY 06 to 12.46 percentduring Jul-May FY 07; the lowest credit growth inthe last four years (see Fig-6.2). The volume ofcredit also declined substantially in the said periodshowing that monetary policy has been reasonablysuccessful in reducing excess demand in theeconomy. However credit to private sector aspercent of GDP is rising since 1990-91 from 21.7percent to 27.4 percent in 2005-06 (Fig-6.3)

Fig-6.3 Private Sector Credit as % of GDP

34.3 34.4

23.518.4

30

25

20

15

12.8

07 (ta rg et )

03 04 05FYFY FY FY

06

P e rc e n t

-9 2

-9 4

-9 6

-9 8

-0 0

-0 2

-0 403

200191

19 19 19 19 19 20

88

FY 200593 95 97 99

-0 6

Money and Credit

Besides interest rate increases, other contributoryfactors for a slowdown in private sector creditwere;(1) the availability of non-bank finance to theprivate sector, including credit from NBFIs,increase in foreign private loans and issuance ofcorporate bonds in international market by theprivate sector companies (2) banks following moreconservative credit assessment given the expandedborrowers’ data available through CIB ; (3)mergers and acquisition in the banking industry1;and(4) the SBP’s continuous emphasis onmonitoring the personal loans as well as underother schemes to ensure the minimum use of bankcredit to finance speculative activities. In fact, asignificant contribution to the realized FY 07 creditgrowth was due to the provision of concessionalfinancing facilities extended to the export sector bythe SBP.

Table-6.3 Private sector Advances

Sectors

Overall Credit

I. Advances to Private Sector business A. Agriculture

B.Fishing

C.Mining And Quarrying

D.Manufacturing

E.Ship breaking and waste

F.Electricity,gas and water

G.Construction

H.Commerce and Trade

I.Transport,storage andcommunicationsJ.Services

K.Other Private Business

II.Trust funds and NPOs

III.Personal

IV.Others

V.Investment in Securities and Shares

Rs.million)

Jul-Mar FY06FY07312460 267482

233049

-1367

-585

1231

132033

1217

2375

9015

51227

5737

21586

10581

1628

67231

-6478

17030

203194

10535

-113

345

119039

-263

12323

10314

15873

13888

18360

2893

620

38819

4067

20783

Apr FY 07 was not only concentrated in fewsectors; but was concentrated in few banks as well.The bank wise data shows that excluding theprivatized banks, the credit to private sector hasdecelerated only slightly2.

A sectoral analysis of the data shows that withinbusiness sector, the major slowdown came fromthe commerce and trade sector (the growth ofwhich was only one third of the growth in thepreceding year), textiles, cement industries andpersonal loans. The slowdown in trade financingduring Jul-Feb FY 07 is in line with the slowdownin aggregate trade volume deceleration in growth.However, the composition of trade financingduring Jul-Feb FY 07 is in contrast with Jul-Feb FY06. Foreign currency loans, on the other hand, losttheir attractiveness for domestic exporters becauseof declining spread between the cost of FE-25 andEFS loans.

Within the agriculture sector, government hadincreased its target by 23% to Rs.160 billioncompared with Rs.130billion of FY 06.The grossdisbursement to agri-sector grew by 22% to Rs.111billion during Jul-Mar FY 07 compared with anexpansion of 23.5% (Rs.91billion) during the sameperiod of last year (Table-6.4).Production loansrose by 28.3% to Rs.98 billion from Rs.76 billionlast year; while the development loans declined toRs.13.5 billion from Rs.15 billion during the sameperiod. Commercial banks gross disbursementduring Jul-Mar FY07grew by 12.2% to Rs.65billionand the commercial banks maintained the lead interms of credit disbursement over the traditionaldominance of Zarai Taraqiati Bank. The creditperformance of small private domestic banks alsoimproved marginally as their credit share rose to14.5 (Rs.16.1 billion) from 12 %( Rs.11 billion) ofthe last year. The share of production loans infiscal year 2006-07 increased to almost 88 percentfrom 83.5 percent last year. The share ofcommercial banks in production loans jumped to88 percent in Jul-Mar 2006-07 from 81 percent lastyear. It appears that commercial banks have

2

Source:SBP

Nevertheless, the disaggregated data shows thatthe slowdown in private sector credit during Jul-

The banks that merged during Jul-Apr FY 07registered an expansion of Rs.13.6 billion comparedwith Rs.28.8 billion in the preceding year.

1

Privatized banks include HBL,MCB,ABL,and UBL

89

Economic Survey 2006-07

concentrated more in production loans thandevelopment loans but the lack of demand fordevelopment loans cannot be ruled out as its share

in total credit disbursement also declined from 16.5percent to 12 percent.

(Rs.million)Table-6.4 Targets and Actual Disbursement of Agriculture Loans

Name Of Bank

I. Total Commercial Banks (A+B)A. Major Commercial Banks1.Allied Bank of Pakistan Limited2.Habib Bank Limited3.Muslim Commercial Bank Limited4.National Bank of Pakistan5.United Bank LimitedB Private Domestic BanksII.Total Specialized Banks(1+2)1.Zarai Taraqiati Bank Limited2.P.P.C.BGrand Total (I+II)

Production Loans 46981 37641 3637 9795 3871 14803 5534 9340 29121 25666 3455 76102

Actual Disbursement (July-March) FY 06FY 07DevelopmentTotalProduction DevelopmentTotal LoansLoansLoans 109725795357185785965044 93324697342939612348962 7137084470784548 6113159079256401513270 224409552441245368 19171672117525150019025 1007654163434066749 16401098014346173616082 40863320840448570346151 33612902736893398940881 7254181355617145270 15059911619763313562111195 Source:SBP

Table 6.5 Acceleration/Deceleration in Advances toPrivate Sector Business-Major Sectors

AcceleratingDecelerating ManufacturingCoke and refined petroMade-up textilesproductsMachinery andCarpets and rugsequipmentSports goodsLeatherWearing apparel,Spinning,weaving andreadymadefinishingElectrical machineryManufacture & distribution of gaseBasic MetalsTransport & equipmentMedicinalFertilizers and nitrogenpharmaceuticalsGrain millsKnit wearEdible oil and gheeSugar Cement Non-ManufacturingProduction and Trans ofRadio and televisionelectricityHealthBuildingCollection & distribution Mining and Quarryingof waterHotel and restaurantsTransport & equipmentInfrastructureCommerce and TradeEducationReal EstateTelecommunicationsShip breaking and wasteFishingGrowing of cropsLivestock Source:SBP

Advances to manufacturing sector decelerated toreach 13.2 percent during Jul-Mar FY 07 comparedwith 17.5 percent in the preceding year. Within themanufacturing sector, advances to textile industryregistered major slowdown during Jul-Mar FY 07attributed mainly to certain industry specificfactors. Specifically, more than half of themanufacturing units registered a higher growth inoff-take of working capital loans while rest of theunits observed slower growth.Demand from the utilities segment has been weakin the past but has picked up (65.3 percent duringJul-Mar FY 07 as compared to 15.4 percent for thecorresponding period last year). According toinformation available from Private Power &Infrastructure Board (PPIB) which facilitatesIndependent Power Producers (IPPs), futureprojects currently under evaluation will addapproximately 13,399 MW to Pakistan’s powergeneration capacity at an estimated cost of USD12.8 billion. Assuming a 70:30 debt equity structuretranslates into a credit requirement ofapproximately Rs. 540 billion for which variousdomestic and international debt options may beexplored by the sponsors of the different projects.

A construction boom is well underway in Pakistanthough a large proportion remains in the informalsector. As construction cost mount, more of thisactivity is expected to come in the formal sector

90

Money and Credit

thus fueling demand for credit. Some internationalconstruction firms such as Emaar, Al-Ghurair, andMeindhart have already started operations inPakistan. At the same time the Karachi StockExchange (KSE) saw its first listing of a real estatedevelopment company in CY 07 suggesting thatthe domestic construction industry is finallycoming of age. Advances to construction sectorremained strong at 24.6 percent during Jul-Mar FY07, although a little lower than 28.7 percent in Jul-Mar FY 06.This was caused primarily by theincreased financing needs of infrastructure relatedconstruction activities. In addition, the rise in rawmaterial prices, especially the international metalprices, have also led to increase in financing needsof construction sector.

After registering an extraordinary growth of 70.5percent in Jul-Mar FY 05, the consumer loans havebeen exhibiting a deceleration; dropping to 31.6percent in Jul-Mar FY 06 and 11.9 percent in Jul-Mar FY 07(Fig-6.4). While the Jul-Mar FY 06slowdown also incorporated some base effect; theslowdown in Jul-Mar FY 07 was caused primarilyby the increase in interest rates as well as morerestrained lending by banks. The deceleration inauto loans, in particular, was the largestcontributor in total decline of private sector credit,the slowdown was attributed to three reasons;(1)the increase in interest rates;(2) low demand forautomobiles as a result of increase in prices ofdomestic cars and low interest of consumer inimported cars;(3) high insurance charges that haveincreased the effective cost of automobilefinancing3 and (4) increased number of bad debtsdue to interest rates increases that resulted in arelatively more cautious lending by the banks.

Personal loans witnessed significant decelerationduring Jul-Mar FY 07.In addition to increased costof financing, the mandatory use of CreditInformation Bureau (CIB) data by banks is alsocited as a major reason in the slowdown ofpersonal loans. In addition, the SBP has givenmuch emphasis on the need to ensure closedmonitoring of personal loans so that these loansare not utilized for speculative activities

Insurance is compulsory for auto financing from banks.Most of the car insurance companies have made itcompulsory for the insurance holders to use costly cartracking devices

3

Fig-6.4 Share of Consume r Financing in total Private Se ctor Cre dit

30%

25%

20%

15%

10%

5%

0%

FY 05 FY 06 Jul-M ar FY 07

13%

26%

21%

6.4.3 Net Domestic Assets (NDA)

Growth in Net Domestic Assets grew by 14.28percent during Jul-May FY 07 as against 13.50percent increase during the corresponding periodin the previous year. The higher growth in NDAwas caused entirely by a sharp growth in credit togovernment sector (Rs.185 billion). The rise ingovernment borrowings more than offset theimpact of a sharp slowdown in credit to non-government sector.

6.4.4 Net Foreign Assets (NFA)

Following the significant improvement incountry’s external account, the NFA of the bankingsystem registered an expansion of Rs.88.2 billionduring Jul-May FY 07.The increase in NFA looksparticularly high especially when compared withRs.9.8 billion initial estimate in the Credit Plan forFY 07 and a sizable low expansion of Rs.43.8billion during the same period last year.

Major factors responsible for the current expansionin NFA include, relatively high remittancesinflows, influx of foreign exchange mainly throughGDRs, a relatively high foreign investment (bothFDI and Portfolio), foreign private loans andincrease in loan disbursements from AsianDevelopment Bank. Within the banking system, sofar, the growth in NFA stemmed entirely fromscheduled banks’NFA where most of the privatesector foreign exchange flows were directed. Theincrease in SBP NFA,in contrast, during Jul-MayFY 07 were a little lower than in Jul-May FY 06mainly due to relatively lower government sectorexternal inflows in the former period.

91

Economic Survey 2006-07

Specifically, despite a substantially lower interbank US dollar injections, the SBP NFA increasedby Rs 34.85 billion during Jul-May FY 07 ascompared with a net expansion of Rs.71.7 billionduring the same period of FY 06. The NFA of thescheduled banks showed an expansion ofRs.177.17 billion during Jul-May FY 07 comparedto Rs.1.8 billion during Jul-May FY 06.This higherexpansion is mainly explained by high foreigninvestment (both direct and portfolio), a sluggishdemand for FE-25 loans by the business sector andsignificantlyhigherinflowsofworkers’remittances during Jul-Apr FY 07.And most of theincrease in scheduled bank’s NFA came during theQ3-FY 07 when the overall external accountbalance turned into a surplus(Fig-6.5). In additionto a narrowing trade deficit and an increase inforeign direct investments, a noticeable increase

Table-6.6 Monetary Aggregates

Items

Narrow Money (M1) (1+2+3)Currency in CirculationDemand Deposits with banksOther Deposits with SBPTime Deposits with BanksResident's foreign Currency DepositsMonetary Assets Stock (M2)(1+2+3+4+5)As Percent of M2Currency in CirculationDemand Deposits with banksOther Deposits with SBPTime Deposits with BanksResident's foreign Currency Deposits

End June

20051624234665901 954998 33351161823 1802952966352

22.4532.19 0.1139.17 6.08

200618405817403901095260 49311380418 1955013416500

21.6732.06 0.1440.40 5.72

2005-06178564111046 66953 565171546 8094358204

31.018.7 0.247.92.3

was also observed in Special Convertible RupeeAccounts (SCRA) balances during Q3-FY 07 whichhas even higher than the combined increase inSCRA during Q1 and Q2-FY 07.Although SBPpurchased major part of foreign exchange frominter-bank market during Q3-FY 07; the volume ofpurchases was not sufficient to offset the impact ofthese inflows.

6.4.5 Monetary Assets

The Components of monetary assets (M2) include:Currency in circulation, Demand Deposit, Timedeposit, Other Deposits (Excluding IMF A/C,counterpart) and Resident’s foreign currencydeposits (RFCDs). The developments in thesecomponents during the first nine months of thecurrent fiscal year are presented below ( Table-6.6).

(Rs million)

July-12 May 2006-07 1480980 133781 1346017 1182 -1008089 4984 477875

28.0281.7* 0.2-211.0* 1.0 Source:SBP

*. Sharp increase in demand deposits and equally sharp decline in time deposits simply reflect the change in classification done by

the SBP. Effective from 22 July 2006, demand and time deposits have been re-classified in accordance with BSD Circular No 9 2006dated 18th July 2006. Time deposits of less than 6 months are included in demand deposits for the purpose of CRR and SLR.

6.4.5.i Currency in Circulation

As shown in the Table 6.6, currency in circulationduring July-May FY 07 increased by 18.1 percentas against an expansion of 16.7 percent during thesame period of last year. A high growth incurrency in circulation reflects increased level ofeconomic activities. The currency in circulationconstituted 28 percent of the money supply (M2)as against 31 percent in the same period last year.The decline in the share of currency in circulationreflects the rise in monetization of the economy.

92

6.4.5.ii Deposit with Scheduled Banks

During Jul-May FY 07 demand deposits hasincreased by 122.89 percent as compared to theirincrease of 7 percent in the same period of lastyear. Time deposits on the other hand showed adecline of 73 percent as compared to their increaseof 14.8 percent in the comparable period of lastyear.4

4*. Sharp increase in demand deposits and equally sharp decline in

time deposits simply reflect the change in classification done by the

Money and Credit

The M2/GDP ratio, which is an indicator offinancial development continued to exhibit a risingtrend since 1990-00 from 36.9 percent to 45 percentin 2005-06.In March 2007, M2/GDP ratio was 43.6percent as compared to 42.7 percent in thecorresponding period of last year (see Table 6.7).

Table-6.7 Key Indicators of Pakistan's FinancialDevelopment

Years

1999-002000-012001-022002-032003-042004-052005-06Jul-Mar2005-062006-07

M2/GD P 36.9 36.7 40.0 43.1 44.9 45.1 45.0

42.743.6

M1/M252.849.949.853.255.254.853.9

54.285.9*

DD+TD/ M2 74.6 75.4 75.4 76.2 76.8 77.6 72.5

71.172.6*

TD/M239.240.041.340.739.039.240.4

the injection of Rs.72 billion as compared toRs.485.9billion against the injection of Rs.382.8billion in corresponding period of last year.)

Table-6.8 Summary of Open Market Operations

InjectionFY 06FY 07

JulAugSepOctNovDecJanFebMarAprTotal

8.3

38.674.1

25.8111.542.810.796.9382.8

21.2

(Rs.billion) AbsorptionFY 06FY 07 46.8133.5 65.2105.7 69.787 981.3 26.561.9 95.9117.2 67.160.2 64.711.7 41.142.1 88.8485.9789.3 Source:SBP

25

72

34.2 8.9Source: SBP

* It may be noted that it is not comparable with theprevious periods due to change in classification by the SBP(See Annexure-A).

This is evident from a persistent narrow spreadbetween discount rate and overnight ratethroughout July-Feb FY07 period (Fig-6.6).

Finally in order to improve liquidity managementin the inter-bank market, SBP raised the dailyminimum reserve requirement for banks effectivefrom January18th2007. At the same time, SBP wasalso concerned about the recent slowdown inexport growth and growing long term investmentneeds in textile industry. Accordingly, SBP firstlowered the export refinance rate in July 2006,thereby reducing the cost of financing to industryto around 300 bps below market rates. This is inaddition to long term financing for export orientedprojects (LTF-EOP) which is extended at 4-5percent or 600-700 bps below market rates for 3-7years.

Fig-6.6 Weighted Average Overnight Rates

Overnight Rates(mo nthly average)Disco unt Rate

6.5 Interest Rate Environment

The interest rate structure is one of the mostimportant indicators of the financial sectors. It isalso an important determinant of credit flow to theprivate sector and overall investment activities.Lower lending rates and liberal credit policyencourage higher flow of credit to the privatesector while rising lending rate and tight monetarypolicy which are essential tools for controllinginflationary pressures, restrict credit flow to theprivate sector. Consistent with its objective ofshaving off domestic demand with a view toreducing inflation, the SBP not only raised reserverequirements for banks with effect from July 22,2006 but also increased the discount rate by 50 bpsto 9.5 percent.

In addition, SBP continued further with itsfrequent open market operations (OMO’s) to drainexcess liquidity from theinter-bank market.(Specifically, SBP conducted 58 OMOs during July-April FY 07 and moped up Rs.789.3 billion against

SBP. Effective from 22 July 2006, demand and time deposits havebeen re-classified in accordance with BSD Circular No 9 2006 dated18th July 2006. Time deposits of less than 6 months are included indemand deposits for the purpose of CRR and SLR.

10

9.5

Percent9

8.5

8

7.5

7

Au g' 06Se p' 06O ct' 06No v' 06D ec '06Ja n'0 7Fe b' 07M ar '0 7

Jul'0 6

93

Economic Survey 2006-07

In addition, SBP also raised the cut-off yield on 6months and 12 months Treasury Bills which hadincreased gradually by 41 and 29 basis points to8.9%and 9.07%, respectively during July-March FY07 (Fig-6.7).Strong demand for T-Bills continued inthe current fiscal year as market offered a totalamount of Rs.843.81 billion in first nine months ofFY 07. The SBP accepted Rs.696.51 billion from theprimary market of T-Bills during the first ninemonths of FY 07 as compared to Rs.739.73 billion

in FY 06 (Table-6.9).This heavy investment fromscheduled banks in government papers was due toincrease in Rupee liquidity at their disposal (Theincrease in liquidity stemmed mainly from astrong deposit growth, a slowdown in credit offtake and SBP’s large US $ purchases from theinter- bank). In the first nine months of FY 07heavy investment was in 12 months T-bills whichconstituted 71.28%, which registered an increase of9.17% as compared to corresponding period of lastyear (Fig-6.8)

Fig-6.7 Weighted Averagerates of returns on T-bills

9.5

9

Percent8.5

Fig-6.8 Percentage Contribution of T-bills

80

70

60

50

40

FY 07 FY 06

71.3

62.1

8

7.5

30

20

10

0

19.1

28.5

9.6 9.4Ju n- 05Se p- 05D ec -0 5M ar -0 6Ju n- 06Se p- 06D ec -0 6M ar -0 7

3-Months 6-Months 12-Months

Table-6.9 Market Treasury Bills Auctions

2005-06 OfferedAccepted3-Months389,173210,5416-Months182,11269,75212-Months555,757459,440 1,127,042739,733Total*Average of maximum & minimum rates

MTB*W.A Rate 7.9 8.2 8.6

Offered182,802 99,320561,683843,805

(Rs million)

July-March 2006-07 Accepted*W.A Rate 133,1528.5 66,9208.6 496,4338.9 696,505 Source:SBP

Interest rates of 3, 5 and 10 years maturities of thePakistan Investment bonds (PIBs) exhibit anincrease in the range of the 14 basis points to 33basis points during the FY 07 over last year. TheSBP conducted four PIBs auctions till March 2007and launched 30 years paper for the first time inDecember 2006 which was highly appreciated bymarket players and it constituted 22% of the totalaccepted amount of PIB during July-March 2006-07(Fig-6.9).All the PIB auctions in aggregate havewitnessed a great participation from the market.Total offered amount was Rs.100 billion; most

94

Fig-6.9 Percentage Contribution of PIBs

30 Years 22%

20 Years 11%

15 Years 12%

3 Years 11%

5 Years 12%

10 Years 32%

Money and Credit

importantly from institutional investors, whichsuggests that the long-term government paper isre-gaining the confidence of investors andcontinuity of PIB issuance would also enable themto invest their liquidity in government papers and

Table-6.10 Pakistan Investment Bonds Auctions

TenureOffered 3,896 6,526 5,590

2005-06Accepted 2,846 4,075 3,240

W.A Rates 9.39 9.65 9.85

Offered 21,770 17,407 26,030 9,850 13,150 12,000100,207

2006-07 (Jul-Mar) Accepted 3,982 4,523 12,170 4,300 4,000 8,000 36,975

manage their balance sheet in more innovativeways. The lengthening of maturities on both assetsand liabilities side could also help in divertingresources from working capital needs towardsinvestment. (Table-6.10)

(Rs.million)

W.A Rates 9.53 9.82 10.18 11.01 11.39 11.68

Source:SBP

3 Years5 Years10 Years15 Years20 Years30 YearsTotal16,01210,161*Average of maximum & minimum rates

Table-6.11 Lending & Deposit Rates(W.A)

LR 8.2 9.1 9.09.59.79.89.5 9.810.210.110.310.2 9.910.210.611.011.111.011.210.710.510.6

2005-07 DR 1.9 2.1 2.2 2.2 2.3 2.4 2.6 2.6 2.8 2.8 2.9 2.9 2.9 3.1 3.1 3.2 3.4 3.6 3.7 3.7 3.8 3.9

Spread 6.4 7.0 6.8 7.3 7.4 7.4 7.0 7.1 7.4 7.4 7.4 7.3 7.0 7.2 7.5 7.8 7.7 7.4 7.5 6.9 6.7 6.6Source:SBP

Jun-05Jul-05Aug-05Sep-05Oct-05Nov-05Dec-05Jan-06Feb-06Mar-06Apr-06May-06Jun-06Jul-06Aug-06Sep-06Oct-06Nov-06Dec-06Jan-07Feb-07Mar-07

2007.The spread between the lending and depositrates has also increased from 6.4 percent in June2005to6.6percentinMarch2007.However,W.A.lending rate has declined by 60basis points during December 2006 to March 2007showing enormous liquidity in the bankingsystem, particularly during the third quarter of thefiscal year when foreign inflows surged inPakistan.

6.5.1 Impact of Rising Interest Rates

The tight monetary stance for almost two years(i.e., since April 2005), and measures of furthertightening adopted at the beginning of FY 07 didhelp in moderating inflation in the country. Theimpact is, however, visible only in non-foodinflation, which has come down to 5.5 % YoY inMarch 2007 from 8.4% and 7.5% in February 2006and June 2006, respectively. On the other hand, inseven out of the first nine months of FY 07, foodinflation was recorded in double digits. Given thatfood items constitute 40.3% of overall CPI basket,higher inflation in the former has restrained thedownward movement in headline inflation.

6.6 Performance Evaluation of Financial Sector

The Financial sector in Pakistan comprises ofcommercialbanks,developmentfinancialinstitutions (DFI), micro finance companies(Leasing companies, investment banks, discounthouses, housing finance companies, Venturecapital companies, mutual funds, modarbas, stockexchanges and insurance companies. As of

95

As shown in Table 6.11,the weighted averagelending rate has increased by 240 basis points in aperiod of 21 months from June 2005 to March 2007from 8.2 percent in June 2005 to 10.6 percent inMarch 2007.In fact, during the first nine months ofthe current fiscal year(Jul-Mar),W.A lending ratehas increased by 70 basis points or from 9.9percent in June 2006 to 10.6 percent in March

Economic Survey 2006-07

September 2006 there were 4 public sector banks, 4specialized banks, 23 local private commercialbanks, 10 foreign banks, and 6 micro financebanks and 7 DFIs.

6.6.1 Commercial Banks

The banking sector has had an exceptional runsince the last few years as profitability has risen by76% on an annual basis due both to rapideconomic growth and prevailing macroeconomicconditions. Economic growth has led to a surge inconsumer spending and banks have capitalized onthis trend by expanding their consumer productportfolio (see Table-6.12 for details).

Table-6.12 Performance of Scheduled Banks

July-March 20052006 -06-07 75037852 74157747 881054029.33733.5 827720.6 27042533.9 118.7114.6 379.6364.42160.62036.3 389.3355.61516.71438.6 66.561.7 188.1180.43090.52852.2 663571.82142.72010.3 13.211.9 271.6258.2 857.8870.3 202.3190.2 573.3578.7 21.621.6 60.679.8

183.8 39.6 99.8 42.4 2

176.7 39 98.1 37.6 2

With the increasing significance of consumerspending in economic growth, the banking sectorpresents a very attractive investment opportunity.Unlike other industries, bank present an exposureto a diversified consumer segment base, thusreducing the risk associated with a single industry.

In 2006-07, total number of branches of domesticbanks was 7747 as compared to 7415 in 2005-06;there has been an increase of 332 branches in thefirst nine months of FY 07.

Assets of all banks show a net contraction ofRs.275.8 billion in the first nine months of FY 07 ascompared to same period of FY 06.A decelerationin private sector credit and higher contraction inOther Items Net (OIN) contributed to slowdown ofscheduled bank’s assets.

Growth in credit has decelerated during July-Feb07 by Rs.124.3 billion, close analysis of the datashows that the slowdown primarily stems fromdeceleration in fixed investment loans as theworking capital requirements have actuallyaccelerated. Credit growth is expected to accelerateas structural factors are resolved and theinfrastructure projects come online

The total deposit during July-March FY 07 showeda decline of Rs.238 billion as compared with thesame period of last year. A disaggregation ofdeposit mobilization within the banking groupsshows that most of the slowdown is registered indomestic private banks due to mergers andacquisitions activities in the whole year. Thedeposit mobilization of foreign banks and the largeprivatized banks, on the other hand, has remainedhigher. It is interesting to observe that returnsoffered by private sector commercial banks ondeposits which were the lowest during July-Feb 06among banking groups.Duing Jul-Feb FY 07, thesebanks raised deposit rates by 256 basis points andnow operating with the highest deposit rates.Despite this sharp increase in deposit rates, thedeposits of public sector banks registered netdecline.

Net Investment of the banks has registered anincrease of Rs.12.5 billion in FY07 mainlycontributed by the foreign banks amountingRs.79.8 billion as compared to Rs.60.6billion for thenine months of FY 06.

1.No.of Branches─ a. Domestic Banks─ b.Foreign Banks2.Assets (Rs.billion)─ Nationalized Commercial Banks─ Private Banks─ Specialized Banks─ Foreign Banks3.Net Advances (Rs.billion)─ Nationalized Commercial Banks─ Private Banks─ Specialized Banks─ Foreign Banks4.Deposits (Rs.billion)─ Nationalized Commercial Banks─ Private Banks─ Specialized Banks─ Foreign Banks5.Net Investments (Rs.billion)─ Nationalized Commercial Banks─ Private Banks─ Specialized Banks─ Foreign Banks6.Gross Non-Performing Loans (Rs.billion)─ Nationalized Commercial Banks─ Private Banks─ Specialized Banks─ Foreign Banks7.Loans Recovery ratio to Gross NPLs─ Nationalized Commercial Banks─ Private Banks─ Specialized Banks─ Foreign Banks

2612.7 4.60.7 3.75.010.34.9 7.42.1 Source: SBP

96

Money and Credit

Loan Penetration should get a boost fromelectronic banking as debit and credit gain wideracceptance due to their convenience factor. Thenumber of both ATM and credit card holders isincreasing in excess of 50% annually. With MCBjust having entered the segment and ABL planningto re-launch its credit card business the segmentshould continue to see robust growth.

Table-6.13 Electronic Banking Statistics

Period

Jun'05Dec'05Jun'06Dec'06Source: SBP

On-lineBranches

2897326535553947

No. of ATMs

1028121716121948

ATM Transaction(Million No.)

8.567.9410.112.5

Value of ATM Transaction (Million Rs)

43810466756080977656

Credit card AmountOutstanding(Million Rs.) 19340 27099 33538 39198

E-banking has already been introduced by anumber of banks in Pakistan while the governmentis reportedly trying to improve access to bankingfurther through the use of m-banking (mobile).Outof the 6 banks in our universe 3 are alreadyproviding e-banking facilities with at least onemore is about to join their ranks(see Table-6.13).

Asset quality of all banks has steadily been risingas both NPLs and Net NPLs in absolute Rupeeterms have been declining .The NPL for the firstnine months of 2006-07 is recorded to beRs.176.7billion as compared to last year amount ofRs.183.8 billion, overall there is a decline of 3.9%.Private Commercial Banks has reduced its grossnon-performing loans by 1.7% and SpecializesBank contributed with a reduction of 11.3%.Foreign banks stock of net performing loansrecorded no change as was observed in first ninemonths of 2005-06. Cash recovered against thenon-performing in the first nine months of 2006-07is less than that of recovered in the same period of2005-06.There is a reduction of 13.3% in loanrecovery to gross NPLs ratio as compared to thesame period last year,. Nationalized CommercialBanksrecovered0.7%,Specializedbanks4.9%,foreign banks 2.1%,and private commercialcontributed cash recovery of 5% as compared to3.7% in same period of 2005-06.The overallindustry has however improved in its NPLcoverage ratio since CY 00.

There has been a significant Merger andAcquisition (M & A) activity within the bankingindustry over the last couple of years. This hasbeen driven at times by the desire to achieve scaleand other times by attractive investmentopportunities. Out of 8 public sector commercialbanks 4 have been privatized with 3 of the

transactions taking place over a 3 year period fromCY 02 to CY 04.Two of the privatizations attractedforeign interest with one being acquired by aconsortium of the Bestway Group (UK) and AbuDhabi Group (UAE) and the other being acquiredby the Aga Khan Fund for Economic Development(AKFED).Standard Chartered recently acquired a96% stake in the Union bank, a domestic bank forapproximately USD 487 million, a transactiondriven by the desire to gain scale. ABN Amro hasacquired Prime Commercial Bank.

Two transactions have been driven purely asinvestment opportunities over the last 2 years. Oneinvolved Temasek Holdings(Singapore) acquiringapproximately 75% stake in NIB Bank whileSAMBA(Saudi Arabia)is currently in the process ofacquiring a 68% stake in Crescent CommercialBank.

6.6.2 Microfinance Banks

Microfinance emerged in the 1970s as socialinnovators bean to offer financial services to theworking poor-those who were previouslyconsidered’un-bankable’because of their lack ofcollateral. Once given the opportunity, not onlydid clients of MFIs expand their businesses andincrease their incomes, but their high repaymentrates demonstrated that the poor are capable oftransforming their own lives given the chance.This model of lending disapproved all

97

Economic Survey 2006-07

conventional thinking. Microfinance has becomeone of the most sustainable and effective tools inthe fight against global poverty

Microfinance sector in Pakistan has recordedsubstantial growth over the past six years as anoutcome of a conducive policy and regulatoryframework as well as supportive investmentsundertaken by the Government of Pakistantowards the development of the sector. This isevident by the increase in the number of retailInstitutions, more than ten fold increase in numberof clients to nearly a million over the period, entryof the greenfield specialized microfinance banks,diversification in products and expansion indistribution network across some of the mostresource constrained of the country. The outreachwithin the sector remains pre-dominantly ruralwhile new players prefer to expand more in urbanterritories and six specialized microfinance banksas a group having the largest proportion ofmicrofinance clients in the market. Thesedevelopments have encouraged the evolution ofmicro sector such as microfinance networks, ratingagencies, top audit firms having enhanced theircapacities to engage with the microfinanceindustry as well as deepening of the central bankcredit bureau to cater to microfinance clients.

Khushali Bank continues to lead and is the largestmicrofinance Institution in the country in term ofits network, clients and portfolio. The bank has apresence in 85 districts of the country through anetwork of 110 service outlets and processed overa million loans worth Rs.10 billion across 550,000households with a portfolio that is pre-dominantlyrural. Expanding access to low income householdsacross marginalized territories remains a priorityand highlights of the year where the opening ofbranches in Khyber and Kurrum agencies of theFederally Administered Tribal Area besides launchof a network across the eight district affected bythe earthquake in North West Frontier Provinceand Azad Jammu and Kashmir under theEmergency Livelihood Restoration Programfunded by the Government.

The business strategy for the future is to pursueportfolioconsolidationandmaintainingmomentum in terms of client growth and outreachthat will lead to improving sustainability of theInstitution with a greater focus on improving client

98

service and retention. These efforts will contributetowards achieving the sectoral goal for reaching 3million households by 2010 set by theGovernment.Government of Pakistan has alsosought assistance from the ADB to support areforms program, aimed at improving access tocredit and other financial services and to launch aCapacity Building Project to promote thedevelopment of microfinance by expandingmicrofinance outreach and services to the poorest.

6.6.3 Small and Medium Enterprise Sector

The importance of Small and medium EnterpriseSector in achieving and sustaining higher levels ofgrowth in the economy is now well recognizedbased upon the fact that SMEs are a source of lowcost employment. They play a key role inachieving fair and equitable distribution of wealthas well as in fostering a self-help andentrepreneurial culture in the economy. In FY 07,credit disbursed to SME for various sectors wasRs.28.3 billion as compared to Rs.40.593 billion inFY 06.Major contribution was towards the valueadditionofmanufacturingsectorwhichconstituted 43.3 % of the total creditdisbursed(Table-6.14).

SME Bank responds to the need of Small andMedium Entrepreneurs by providing them withthe necessary financial assistance in the form ofmedium to long term funds.

The bank and its leasing company both financed1402 SMEs during the year 2006 by extending tothem record credit of Rs.1.95 billion

During 2006, bank’s disbursements rose to an alltime high and surged to Rs.1.25 billion. Thenumber of clients served rose to 1117 and sinceinception the bank has financed Rs.3.56 billion andserved 5966 clients. Deposit rate rose by 67 %during the year 2006. During 2006 the bank, aspolicy decision, has suspended the recovery ofloans extended to earthquake victims. Thisportfolio stands at Rs.33 million.

The Government of Pakistan assisted by the AsianDevelopment Bank (ADB) engaged in working ona Rs.8 billion SME Sector development. Thisprogram apart from others aspects of policy issues

Money and Credit

relating to SME sector of Pakistan, also envisagesrestructuring of SME Bank Limited.

At the end of 2006, the bank has met keyperformance indicators/milestones on schedule asit has paid Rs.4963 million to SBP up to December31, 2006 against outstanding Credit Lines and bank

Sector

FishingMining and QuarryingManufacturingShip BreakingElectricity and GasCommerce and TradeServicesTransport and CommunicationsConstructionOther Private Business Total

hasincreasedPaid-upCapitaltoRs.2000million.Now bank is heading towardsPrivitization.InthisregardPrivatizationcommission (PC) has constituted a transactioncommittee and PC has initiated formalities onFebruary 12, 2007.

(Rs.million)

Jun'06 913 822153147 959 187212372323163 97111297632318359605

Feb'07 693 1018168067 414 2786127688 25160 9994 1466337405387888

FlowsFY 06 (36) -13614473 43 1721909 4386 1383 46-149240593

FY 07 (220) 196 14920 -545 914 3965 1996 283 1686 5087 28283Source:SBP

Table-6.14 Credit to SME

Jun'05 880 782140207 568 178410367619682 8536 1152128650316289

StocksFeb'06 845 646154680 610 1801125585 24068 9919 1156827158356880

Box.1 SME SECTOR DEVELOPMENT PROGRAMME 2007-08

There has been sustained and successful efforts during 2006-07 in creating institutional environment thateffectively supports the growth, competitiveness and resilience of SMEs The flag post of SME was announcement of the SME Policy that has set the premises for generation of a new entrepreneurial culture and business environment for SMEs.The policy is being disseminated through workshops and seminars across the country. In order to provide legal support to its implementation, the SME Act is underway.

In support of the SME policy, various labor laws have been revisited through an extensiveconsultative process with stakeholders. As a result, new policy directions in the form of LaborProtection policy and Labor Inspection Policy have been released with necessary amendmentsincorporated in the Factories Act. The twin policies are expected to go a long way in ensuringworker’s welfare in the SME Sector.

Cluster development has been further amplified by initiating Common Facility Centre in allprovinces with focus on process-technology related services for collective up-gradation of SMEclusters. The first CFC Sanitary ware Development Centre is being set up in Gujranwala.

SME Business Support Fund is successfully engaged in extending its helpful hand to SMEs forimproving production, marketing, financial and HR management. While 28 projects have beenpatronized for cost-sharing, 30 are under consideration with another 58 in pipeline.

The government has spent Rs.142 million on SME Sector Development programme.It is expected toreserve another Rs.380 million during 2007-08

99

Economic Survey 2006-07

Annexure-A

Monetary and Credit Control Measures, 2006-07

1. On 14th July 2006, SBP decided to refinanceunder the Export Finance Schemes (EFS) withimmediate effect shall be 6.5% p.a. Thecommercial banks shall, however, ensure thatwhere financing facilities are extended bythem to the exporters for availing refinancefacilities under EFS, their maximum margin/spread does not exceed 1 % p.a. The final rateof EFS to the borrowers shall, therefore notexceed 7.50 percent p.a.(SBP refinance rate6.50% p.a. +1 % p.a. spread of the banks) asagainst prevailing rate of 9% p.a.

On July 18,2006 SBP decided to revise thereserve requirements with effect from 22July,2006 as under:

i) Cash Reserve Requirement (CRR)

a) Weekly average of 7% (subject to daily minimum of 4%) of total

b) Demand Liabilities (including Time Deposits with tenor of less than 6 months); and

c) Weekly average of 3 % (subject todaily minimum of 1 %) of total TimeLiabilities (including Time Depositswith tenor of 6 months and above)

5.

Government of Pakistan Market Treasury Billsand Federal/Pakistan Investment Bonds hasbeen enhanced by 50 basis points i.e. from 9%to 9.5% p.a.

4. To meet the large unmet demand inmicrofinance sector and to strengtheninginstitutional capacities of MFBs, the existinglegal 7 regulatory framework was changedthrough Prudential Regulations for MFBs,which mainly relate to increase in maximumloan size, investment of surplus fund,minimum income threshold, submission ofaudited financial statements, and declarationof Fidelity and Secrecy. The revised PrudentialRegulations for MFBs were enforced withimmediate effect.

To contain intra-day money market ratevolatility SBP with effect from 19th January2007 decided to raise the daily minimumrequirements for Cash Reserves to 6% and 2%of demand and time liabilities respectively forall banks/DFIs including Islamic Banks. Whilethe weekly average CRR was kept unchangedat 7% and 3% of demand and time liabilitiesrespectively.

In order to create awareness and to facilitatethe public in making informed decisions, onJuly 14th 2006 SBP decided that henceforthbanks/DFIs shall make complete disclosuresof the lending and deposit rates of allconsumer products offered by then by postingthis information on their websites as well asprominently displaying on entrance/ orwindow of their branches. In order to facilitatecomparison, banks/DFIs would also discloseannualized percentage rates on all consumerproducts.

2.

6.

ii) Statutory Liquidity Requirements (SLR)

18 % (excluding CRR) of total Time andDemand Liabilities.

3. On July 29, 2006 SBP decided that with effectfrom 31st July, 2006 the minimum rate of returnto be paid by recipients of financing facilitiesfrom SBP for meeting temporary liquidityshortage and SBP 3-day Repo facility against

100

TABLE 5.1

COMPONENTS OF MONETARY ASSETS

(Rs million)

Stocks at end June (a)

1. Currency Issued2. Currency held by SBP3. Currency in tills of Scheduled Banks4. Currency in circulation (1-2-3)5. Scheduled Banks demand deposits (b)

6. Other Deposits with SBP (c)

1993

178,933 768

11,301166,864

156,509 4,449327,822

206,294

61,274

595,390 17.8

1994

199,070 624

13,738184,708

168,554 5,506358,768

252,497

92,134

703,399 18.1

1995

232,589 647

16,363215,579

202,505 5,055423,139

296,521

105,073

824,733 17.2

1996

253,908 470

19,328234,110

207,108 6,791448,009

344,713

145,958

1997

262,589 627

17,821244,141

192,275 7,135443,551

386,801

222,882

1998

293,263 1,572

18,769272,922

200,997 6,412480,331

447,433

278,556

1999

308,542 1,955

18,870287,717

349,115 6,212643,044

516,586

120,917

2000

376,997 1,851

19,468355,677

375,397 7,959739,033

549,124

112,475

7. M1 (4+5+6) 8. Scheduled Banks Time Deposits (b) 9. Resident Foreign Currency Deposits10. Total Monetary Assets(M2) (7+8+9)11. Growth Rate (%)

Memorandum Items1. Currency/Money Ratio2. Demand Deposits/Money Ratio3. Time Deposits/Money Ratio4. Other Deposits/Money Ratio5. RFCD/Money ratio6. Income Velocity of Money (d)

938,680 1,053,234 1,206,320 1,280,547 1,400,632 13.812.214.56.29.4

28.026.334.6 0.710.3 2.3

26.324.035.9 0.813.1 2.4

26.124.636.0 0.612.7 2.4

24.922.136.7 0.715.5 2.5

23.218.336.7 0.721.2 2.4

22.616.737.1 0.523.1 2.4

22.527.340.3 0.5 9.4 2.3

25.4 26.8 39.2 0.6 8.0 2.4(Contd.)

a. Last working day.b. Excluding inter-bank deposits and deposists of federal and provincial governments and foreign constituents.c. Excluding IMF A/C Nos 1&2, SAF Loans, deposits money banks. counter-part funds, deposits of foreign central banks, Foreign governments and International organizations.d. Income velocity of money is defined by the State Bank as GDP at current factor cost/quarterly average of Monetary Assets.Note: Totals may not tally due to rounding.

TABLE 5.1

COMPONENTS OF MONETARY ASSETS

Stocks at end June (a)

1. Currency Issued2. Currency held by SBP3. Currency in tills of Scheduled Banks4. Currency in circulation (1-2-3)5. Scheduled Banks demand deposits (b)6. Other Deposits with SBP (c)7. M1 (4+5+6)8. Scheduled Banks Time Deposits (b)9. Resident Foreign Currency Deposits10. Total Monetary Assets(M2) (7+8+9)11. Growth Rate (%)

Memorandum Items1. Currency/Money Ratio2. Demand Deposits/Money Ratio3. Time Deposits/Money Ratio4. Other Deposits/Money Ratio5. RFCD/Money ratio6. Income Velocity of Money (d)

2001

396,548 1,905

19,178375,465

374,675 11,292761,432

610,458

154,154

1,526,044 9.0

2002

462,095 1,865

26,414433,816

429,175 13,847876,838

727,076

157,456

1,761,370 15.4

2003

527,557 2,565

30,415494,577

608,170 3,4991,106,246

846,321

126,138

2,078,705 18.0

2004

617,508 2,960

36,432578,116

791,413 2,1161,371,645

969,217

145,694

2,486,556 19.6

2005

712,480 3,107

43,472665,901

954,998 3,3351,624,235

1,161,823

180,295

2,966,352 19.3

2006

791,834 3,005

48,439740,390

1,095,260 4,9311,840,581

1,380,418

195,501

3,416,500 15.2

(Rs million)End March

2006

792,549 2,812

44,927744,810

1,011,644 3,5661,760,020

1,296,092

188,389

3,244,501 9.4

2007 P

887,301 3,162

49,615834,524

2,416,604 5,5953,256,723

335,823

200,484

3,793,030 11.0

24.624.640.0 0.710.1 2.4

24.624.441.3 0.8 8.9 2.2

23.829.340.7 0.2 6.1 2.3

23.231.839.0 0.1 5.9 2.2

22.432.239.2 0.1 6.1 2.2

21.723.022.0 32.131.263.7 40.439.98.9 0.10.10.1 5.75.85.3 2.3Source: State Bank of Pakistan

a. Last working day.b. Excluding inter-bank deposits and deposists of federal and provincial governments and foreign constituents.c. Excluding IMF A/C Nos 1&2, SAF Loans, deposits money banks. counter-part funds, deposits of foreign central banks, Foreign governments and International organizations.d. Income velocity of money is defined by the State Bank as GDP at current factor cost/quarterly average of Monetary Assets.P. ProvisionalNote: Totals may not tally due to rounding.

TABLE 5.2

CAUSATIVE FACTORS ASSOCIATED WITH MONETARY ASSETS

(Rs million)

1991

1 Public Sector Borrowing (net) ( i + ii + iii + iv + v + vi + vii ) iNet Budgetary Support iiCommodity Operations iiiZakat Fund etc. ivUtilization of privatization proceeds by Govt./WAPDA vUse of Privatization proceeds/ NDRP Fund for Debt Retirement viPayment to HBL on A/C of HC&EB 2 Non-Government Sector iAutonomous Bodies1 iiNet Credit to Private Sector & PSCEs a. Private Sector b. Public Sector Corp. other than 2(i)3 Counterpart Funds4 Other Items (Net)5 Domestic Credit (1+2+3+4)6 Foreign Assets (Net)7 Monetary Assets (5+6)

1992 1993 1994 1995 1996 1997 1998

A. End June Stock

201174194501 18675-12002

-

-

260962 9374

251588221062

30526 -330-36857424949-24305400644

270165257074 22869 -9778

-

-

292381 10661

281720251311

30409 -151-41500520895-15326505569

345167322772 30204 -7809

-

-

352954 14594

338360309595

28765 -546-52846644729-49339595390

373433345917 36786 -9270

-

-

392820 13744

379076352363

26713 -388-46537719328-15930703398

426520382336 41519-11465

-

14130

462357 16955

445402416094

29308 -464-74705813708 11027824735

495047434062 47377-12522

-

26130

531064 20121

510943478701

32242 -617-58844966650-27971938679

574023504562 53079-15392

36434

-4660

602828 29196

573632546814

26818 -736 -616211114494 -612601053234

630745552580 63664-18518

37657

-5749 287696672 28302

668370632025

36345 -650 -452901281477 -751571206320

B. Changes over the year (July-June)

8 Public Sector Borrowing (net) ( i + ii + iii + iv + v + vi + vii ) iNet Budgetary Support iiCommodity Operations iiiZakat Fund etc. ivUtilization of privatization proceeds by Govt./WAPDA vUse of Privatization proceeds/ NDRP Fund for Debt Retirement viPayment to HBL on A/C of HC&EB vii Others9 Non-Government Sector iAutonomous Bodies1 iiNet Credit to Private Sector & PSCEs a. Private Sector b. Public Sector Corp. other than 2(i)10 Counterpart Funds11 Other Items (Net)12 Domestic Credit Expansion (8+9+10+11)13 Foreign Assets (Net)14 Monetary Expansions (13+14)

2743838332-5315-5579

-

-

2

26899162573 4194 2224

-

-

7500265698 7335 1969

-

-

2826623145 6582-1461

-

-

5308736419 4733-2195

-

14130

6852751726 5858-1057

-

12000 - -63429 3166

6026357329

2934 -15321139

152942-38998

113944

8093372457 5702(2870)

10304

-4660 0 -61879 -242

6212159907

2214 -119 5152

147845-33289

114556

9

567224801810585(3126)

1223 -1089 287 0 -83414 -894

8430874781

9527 8626761

166983(13897)

153086(Contd.)

21702 592

2111025096

-3986 178 4362

53680 5712

59392

2

2

31419 1287

3013230249

-117 179-4643

95946 8979

104925

60573 3933

5664058284

-1644 -395-11346

123834-34013

89821

39866 -850

4071642768

-2052 158 6309

7459933409

108008

69537 3211

6632663731

2595 -76-28168

9438026957

121337

4,9

7

*

*

*

3 4

7,9

*

3 4,9

TABLE 5.2

CAUSATIVE FACTORS ASSOCIATED WITH MONETARY ASSETS

1999

1 Public Sector Borrowing (net) (i + ii + iii + iv + v + vi + vii) i Net Budgetary Support ii Commodity Operations iii Zakat Fund etc. iv Utilization of privatization proceeds by Govt./WAPDA v Use of Privatization proceeds/ NDRP Fund for Debt Retirement vi Payment to HBL on A/C of HC&EB2 Non-Government Sector i Autonomous Bodies1 ii Net Credit to Private Sector & PSCEs a. Private Sector b. Public Sector Corp. other than 2(i c. PSEs Special Account Debt Repay d. Other Financial Institutions (NBFI3 Counterpart Funds4 Other Items (Net5 Domestic Credit (1+2+3+4)6 Foreign Assets (Net)7 Monetary Assets (5+6)

2000 2001

A. Stock End June

583598505887 67309(21793)

37657

(5749) 287816710 41351775359

735887 43124 (3652) 0 (589) (73544)1326175 (45629)1280546

661832545850107403(23616)

37657

(5749) 287842752 68637774115

754190 28826 (8901) 0 (611) (59087)1444886 (44254)1400632

6018704998888 95311 (25524)

37657

(5749) 287902603 75240827363

750211 37036 (12241) 52357 (562) (6202)1497707 283381526046

677054567208100642(22991)

37657

(5749) 287921596 60159861437

841057 35563 (15183) 37877 (536) (67463)1530651 2307181761370

598623511186 74047(18805)

37657

(5749) 2871048162 55370 992892

949030 32386 (18802) 30278 (586)(107258)1539041 5396642078704

2002

(Rs million)

2003

8 8 8

B. Changes over the year (July-June)

8 Public Sector Borrowing (net) (i+ii+iii+iv+v+vi+vii) i Net Budgetary Support ii Commodity Operations iii Zakat Fund etc.9 Non-Government Sector i Autonomous Bodies1 ii Net Credit to Private Sector & PSCEs a. Private Sector b. Public Sector Corp. other than 2(i c. PSEs Special Account Debt Repay d. Other Financial Institutions (NBFI10 Counterpart Funds11 Other Items (Net)12 Domestic Credit Expansion (8+9+10+11)13 Foreign Assets (Net)14 Monetary Expansions (13+14)

(74824) #(75193) 8'#' 3645 (3275)119214 13049106165103038 6779 (3652) 0 61 246 # 44697 29529 74226

78234 39963 40094 (1823) 26044 3125 22916 18303 9862 (5249) 0 (22) 14457118711 1375120086

(46731)(32315)(12508) (1908) 69194 11573 57620 48633 12327 (3340) 0 49 30863 53374 72654126028

22177 14313 5331 2533 18993(15081) 34074 52969 (1473) (2942)(14480) 26(12040) 29156206168235324

(78361)(55952)(26595) 4186148539 (4789)153328167723 (3177) (3619) (7599) (50)(61674) 8454308946317400 (Contd)

8 8@

@

7

@@

7

7

TABLE 5.2

CAUSATIVE FACTORS ASSOCIATED WITH MONETARY ASSETS

End March

20042005 A. Stock End June

1 Public Sector Borrowing (net) (i + ii + iii + iv + v + vi + vii) i Net Budgetary Support ii Commodity Operations iii Zakat Fund etc. iv Utilization of privatization proceeds by Govt./WAPDA v Use of Privatization proceeds/ NDRP Fund for Debt Retirement vi Payment to HBL on A/C of HC&EB2 Non-Government Sector i Autonomous Bodies1 ii Net Credit to Private Sector & PSCEs a. Private Sector b. Public Sector Corp. other than 2(i c. PSEs Special Account Debt Repay d. Other Financial Institutions (NBFI3 Counterpart Funds4 Other Items (Net5 Domestic Credit (1+2+3+4)6 Foreign Assets (Net)7 Monetary Assets (5+6)

656729574886 65873(16224)

37657

(5749) 2871363669 342931329376

1274245 53852 (22108) 23387 (628)(116405)1903367 5831902486556

752515646682 87836(14198)

37657

(5749) 2871782368 322241750144

1712093 44838 (23714) 16927 (539)(204929)2329415 6369382966352

2006 2006 2007 P

(Rs million)

843281717632107762(14308)

37657

(5749) 2872190769 369792153790

2113890 47237 (23225) 15889 (546)(305434)2728071 6884293416500

780317707916 54800(14594)

37657

(5749) 2872128366 355792092787

2056287 43937 (23059) 15622 (536)(284996)2623151 6213503244501

913671834230 61722(14476)

37657

(5749) 2872461120 399582421162

2385708 42756 (23446) 16144 (509)(345600)3028682 7643483793030

B. Changes over the year (July-June)

8 Public Sector Borrowing (net) (i+ii+iii+iv+v+vi+vii) i Net Budgetary Support ii Commodity Operations iii Zakat Fund etc.9 Non-Government Sector i Autonomous Bodies1 ii Net Credit to Private Sector & PSCEs a. Private Sector b. Public Sector Corp. other than 2(i c. PSEs Special Account Debt Repay d. Other Financial Institutions (NBFI10 Counterpart Funds11 Other Items (Net)12 Domestic Credit Expansion (8+9+10+11)13 Foreign Assets (Net)14 Monetary Expansions (13+14)

58106 63700 (8174) 2581315407(21077)336484325215 21466 (3306) (6891) (42) (9147)364326 43526407852

95785 71796 21963 2026418699 (2069)420768437848 (9014) (1606) (6460) 88(88525)426048 53748479796

90766 70950 19926 (110) 408401 4755 403646 401797 2399 489 (1038) (7)(100504) 398656 51491 450147

2780270390 61234116598(33036)(46040) (396)(168)345998270351 33552979342643267372344194271819 (901)(4481) 655(221) (1306)255 337(80066)(40167)293736300611(15587)75919278149376530Source: State Bank of Pakistan

Till end June 1996 autonomous bodies consisted of WAPDA, OGDC, PTC,1 NFC,and PTV, thereafter their composition has been changed as WAPDA, OGDC, PTC, SSGC SNGPL, KESC and Pakistan Railways.

2345678#

Adjusted for SAF loans amounting to Rs 7371 million Adjusted for Rs 5278 million to exclude the impact arising due to mark up debited to the borrowers account. Adjusted for Rs 8207million being mark up debited to the borrowers account Credit to NHA by commercial Banks. Credit to NHA and CAA by commercial banks The difference in flow data is due to change in the composition of autonomous bodies. Special Account-Debt Repayment Adjusted. Adjusted for Rs 28.5 billion on account of Adhoc Treasury Bills created to offset the government losses due to the unification of exchange rate@' The difference in flow data is due to change in the total number of PSESNote: Figures in the parentheses represent negative signs.P : Provisional

TABLE 5.3

SCHEDULED BANKS POSITION BASED ON WEEKLY RETURNS: LIABILITIES AND ASSETS

(Rs million)

Outstanding Amount at end June 1993 1994 1995 1996 1997 1998 1999 2000 2001

LIABILITIES 1. Capital (paid-up) and Reserves Demand liabilities in Pakistan36,011 2. Inter-banks Demand Liabilities12,822 2.1 Borrowing(1,436) 2.2 Deposits(11,386) 3. Deposits (General)217,711 4. Other Liabilities9,112 5. Total Demand Liabilities (2+3+4)239,645TIME LIABILITIES IN PAKISTAN 6. Inter-banks Time Liabilities4,937 6.1 Borrowing(3,976) 6.2 Deposits(961) 7. Time Deposits (General)270,343 8. Other Liabilities3,920 9. Total Time Libilities (6+7+8)279,20010. Total Demand and Time Liabilities518,84511. Borrowing From SBP64,57712. Borrowing from Banks Abroad14,61413. Money at Call and Short Notice in Pakistan6,58414. Other Liabilities505,57015. Total Liabilities1,146,20116. Total Statutory Reserves26,27116.1 On Demand Liabilities(12,311)16.2 On Time Liabilities Assets(13,960)ASSETS17. Cash in Pakistan11,30118. Balances with SBP48,74519. Other Balances8,92020. Money at Call and Short Notice in Pakistan7,00221. 17+18+19+20 as % of 1014.6FOREIGN CURRENCY22. Foreign Currency held in Pakistan2,19423. Balances with Banks Abroad6,19024. Total Foreign Currency8,384BANK CREDIT ADVANCES25. To Banks7,83026. To Others308,99227. Total Advances316,82228. Bills Purchased and Discounted44,14929. Total Bank Credit360,97130. 29 as % of 1069.6INVESTMENT IN SECURITIES AND SHARES31. Central Government Securities140,12432. Provincial Government Securities3,72733. Treasury Bills35,66034. Other Investment in Securities & Sahres31,33135. Total Investment in Securities and Shares210,84236. 35 as % of 1040.637. Other Assets490,03638 Advance Tax Paid-39 Fixed Assets-40 Total Assets1,146,20141 Excess Reserves (18-16)22,474

43,770 14,532 (2,878)(11,654)256,188 12,578283,298

7,181 (3,333) (3,848) 342,368 4,812 354,361 637,659 70,583 14,217 6,721 640,1641,413,114 32,219 (14,501) (17,718)

13,95963,74614,814 7,062 15.6

4,261 7,89912,160

8,616347,868356,484 52,483408,967 64.1

147,076 3,345 83,443 32,632 266,496 41.8 625,910 - -1,413,114 31,523

50,533 16,787 (5,104)(11,683)296,739 16,500330,026

9,059 (5,998) (3,061) 405,882 3,388 418,329 748,355 82,668 14,280 8,350 743,4301,647,616 37,835 (16,919) (20,916)

16,36378,50311,012 8,814 15.3

3,017 8,16311,180

13,482413,811427,293 59,649486,942 65.1

166,687 3,340 90,059 35,210 295,296 39.5 739,506 - -1,647,616 40,668

56,255 13,281 (115)(13,166)339,408 19,224371,913

5,509 (2,965) (2,544) 495,677 4,737 505,923 877,836 56,914 13,424 8,070 897,8921,910,391 44,295 (18,999) (25,296)

19,32863,50214,516 8,989 12.1

3,66716,54520,212

5,449474,731480,180 62,511542,691 61.8

144,922 3,338 137,110 42,512 327,882 37.4913271.0 - -1,910,391 19,207

60,935 13,722 (407)(13,315)358,457 21,654393,833

5,422 (3,618) (1,804) 571,574 5,369 582,365 976,198 77,999 14,622 5,370 993,9602,129,084 49,078 19,960 (29,118)

17,82189,75616,864 5,772 13.2

4,64710,91815,565

3,690552,522556,212 70,675626,887 64.2

134,417 2,399 167,945 39,023 343,784 35.21,012,645 - -2,129,084 40,678

91,060 10,991 (78)(10,913)411,361 25,120447,472

10,658 (7,744) (2,914) 628,076 7,141 645,8751,093,347 113,919 16,518 7,768 264,9811,587,593 55,056 (22,762) (32,294)

18,76984,74018,210 8,903 11.9

2,70621,79824,504

5,687644,049649,736 63,073712,809 65.2

123,647 2,148 235,388 40,900 402,119 36.8 254,970 49,332 13,2371,587,593 29,684

75,632 7,968 (61) (7,907)454,072 38,491500,531

8,633 (5,845) (2,788) 661,401 8,329 678,3631,178,894 142,147 22,089 17,528 298,0191,734,309 59,821 (25,903) (33,918)

18,870100,335 19,116 18,095 13.3

2,98139,01942,000

4,402725,852730,254 63,774794,028 67.4

115,671 1,969 204,160 69,069 390,869 33.2 255,378 69,564 26,0541,734,309 40,514

79,648 8,580 (43) (8,537)475,281 47,420531,281

6,300 (5,674) (626) 652,279 10,759 669,3381,200,619 141,016 16,657 42,469 321,2241,801,633 59,287 (26,135) (33,152)

19,468153,371 18,250 43,509 19.5

2,22246,61948,841

5,788801,154806,942 69,554876,496 73.0

115,536 1,730 103,790 65,993 287,049 23.9 252,114 72,941 29,5941,801,633 94,048

88,581 12,282 (34)(12,248)527,672 42,870582,824

4,705 (3,668) (1,037) 712,978 9,494 727,1771,310,001 139,367 15,169 30,293 400,5171,983,928 64,651 (28,527) (36,124)

19,178147,962 18,033 31,179 16.5

4,78870,85675,644

3,657866,490870,147 75,504945,651 72.2

101,161 1,836 123,889 70,048 296934 22.7 340,220 78,205 30,9221,983,928 83,311 Contd.

TABLE 5.3

SCHEDULED BANKS POSITION BASED ON WEEKLY RETURNS: LIABILITIES AND ASSETS

Outstanding Amount at end June2002LIABILITIES 1.Capital (paid-up) and Reserves Demand liabilities in Pakistan85,886 2.Inter-banks Demand Liabilities13,261 2.1 Borrowing(10) 2.2 Deposits(13,251) 3.Deposits (General)609,657 4.Other Liabilities47,333 5.Total Demand Liabilities (2+3+4)670,251TIME LIABILITIES IN PAKISTAN 6.Inter-banks Time Liabilities2,104 6.1 Borrowing(659) 6.2 Deposits(1,445) 7.Time Deposits (General)803,749 8.Other Liabilities12,808 9.Total Time Libilities (6+7+8)818,66110. Total Demand and Time Liabilities1,488,91211. Borrowing From SBP135,55612. Borrowing from Banks Abroad12,64213. Money at Call and Short Notice in Pakistan31,87714. Other Liabilities546,15915. Total Liabilities2,301,03216. Total Statutory Reserves73,67716.1 On Demand Liabilities(32,850)16.2 On Time Liabilities Assets(40,828)ASSETS17. Cash in Pakistan26,41418. Balances with SBP124,88319. Other Balances27,26820. Money at Call and Short Notice in Pakistan32,83121. 17+18+19+20 as % of 1014.2FOREIGN CURRENCY22. Foreign Currency held in Pakistan5,00323. Balances with Banks Abroad89,41624. Total Foreign Currency94,419BANK CREDIT ADVANCES25. To Banks1,62626. To Others894,52427. Total Advances896,15028. Bills Purchased and Discounted75,58829. Total Bank Credit971,73830. 29 as % of 1065.3INVESTMENT IN SECURITIES AND SHARES31. Central Government Securities154,29232. Provincial Government Securities1,72833. Treasury Bills231,50734. Other Investment in Securities & Sahres83,49335. Total Investment in Securities and Shares47102036. 35 as % of 1031.637. Other Assets456,37738. Advance Tax Paid64,27039Fixed Assets31,81240. Total Assets2,301,03241. Excess Reserves (18-16)51,206*: Excluding Contra ItemsNote: Figures in the parentheses represent negative sing.P: Provisional

2003 2004 2005 2006

(Rs million) End March20062007 P

112,230 9,937 (1) (9,936)785,333 53,352848,622

3,991 (621) (3,370) 903,153 16,020 923,1641,771,786 137,882 21,243 28,551 468,3122,540,004 87,893 (41,934) (45,959)

30,415140,077 31,306 28,686 13.0

5,43568,57874,013

253 988,572 988,825 80,6871,069,512 60.4

191,709 1,234 412,449 118,234 723626 40.8 353,842 49,789 38,7382,540,004 52,184

131225 20755 (15) (20740)1014947 565321092234

4806 (1878) (2928)1026919 2070310524282144662 162335 9872 27479 5274523003025 105955 (53574) (52381)

36432151406 36762 30444 12.0

48066097665782

6312580221258085 999241358009 63.3

240842 77 408438 132026 781383 36.4 442162 53879 467663003025 45451

190,652 22,993 (99) (22,894)1,211,674 70,1071,304,774

10,756 (1,024) (9,732)1,231,745 27,2881,269,7892,574,563 185,068 6,245 22,243 645,6163,624,387 127,041 (64,089) (62,952)

43,462188,092 49,021 22,166 11.8

6,777116,627123,404

1901,680,4911,680,681 120,4801,801,161 70.0

173,788 77 415,016 140,453 729334 28.3 563,552 42,386 61,8093,624,387 61,051

315,414 28,608 0 (28,608)1,350,011 97,2661,475,885

25,759 0 (25,759)1,490,182 34,2361,550,1773,026,061 198,725 2,953 172,893 168,0113,884,057 148,585 72,364 76,221

48,439202,501 56,460232,535 17.8

6,44993,38799,836

02,079,0562,079,056 135,9242,214,980 73.2

316,659 17,832 0 (17,832)1,229,009 101,0141,347,856

25,015 0 (25,015)1,402,987 27,9431,455,9452,803,800 186,060 7,480 149,779 166,0763,629,853 138,048 66,501 71,546

44,927165,055 53,112154,933 14.9

7,02767,56774,594

01,973,7851,973,785 127,8222,101,607 75.0

430,537 45,472 0 (45,472)2,631,817 128,9302,806,219

8,775 0 (8,775) 465,880 62,934 537,5893,343,808 252,056 6,146 135,765 148,7624,317,075 209,117 193,252 15,864

49,615254,653 49,669158,854 15.3

9,225135,289144,514

02,276,2472,276,247 142,2682,418,515 72.3

* *

* *

177,860180,830166,260 7733476 411,691433,955539,777 165,598157,877186,058 755227772996892171 25.027.626.7 195,096186,606220,770 6,4237,1337,866 72,56068,889120,4473,884,0573,629,8534,317,075 53,91627,00745,536 Source: State Bank of Pakistan

TABLE 5.4

INCOME VELOCITY OF MONEY

Money Supply (M1) (Rs million)

73,560 80,926 96,542 103,445 118,968 134,831 159,625 185,080 206,359 240,157 265,141 302,908 327,822 358,768 423,139 448,009 443,551 480,331 643,043 739,033 761,432 876,8381,106,2461,371,6451,624,2351,840,581

1,760,0203,256,723

Monetary Assets (M2) (Rs million)

104,621 116,510 146,025 163,267 183,905 211,111 240,023 269,514 290,457 341,251 400,6445,055,569 595,390 703,399 824,733 938,6801,053,2341,206,3201,280,5461,400,6321,526,0441,761,3702,078,7052,486,5562,966,3523,416,500

3,244,5013,793,030

Source: State Bank of Pakistan

(Rs million)Income Velocity of Monetary Assets (M2)

2.72.72.72.72.72.62.52.62.72.72.72.72.32.42.42.42.52.32.42.72.62.52.32.22.22.3

End June Stock

1980-811981-821982-831983-841984-851985-861986-871987-881988-891989-901990-911991-921992-931993-941994-951995-961996-971997-981998-991999-20002000-012001-022002-032003-042004-052005-06End March2005-062006-07 PP:Provisonal

TABLE 5.5

MONEY SUPPLY (M1, M2, M3)

End Period Stocks(last working day)

1980-811981-821982-831983-841984-851985-861986-871987-881988-891989-901990-911991-921992-931993-941994-951995-961996-971997-981998-991999-20002000-012001-022002-032003-042004-052005-06End March2005-062006-07 P

(P) Provisional

Narrow Money (M1)a

73.56 80.93 96.54 103.45 118.97 134.83 159.63 185.08 206.36 240.16 265.14 302.91 327.82 358.77 423.14 448.01 443.55 480.33 643.04 739.03 761.43 876.841,106.251,371.641,624.121,840.58

1,760.023,256.72

% Change Monetary Assets (M2)a

104.62 116.51 146.03 163.27 183.91 211.11 240.02 269.51 290.46 341.25 400.64 505.57 595.39 703.4 824.73 938.681053.231206.321280.551400.631526.041761.372078.712486.562966.353416.50

3244.503793.03

% Change Broad Money (M3)a

116.80 133.87 176.68 206.90 238.87 277.63 330.87 392.67 432.19 504.16 569.40 679.17 777.37 922.221083.731254.231435.481669.231921.472137.192313.872640.943102.003517.003975.504423.40

(Rs billion)% Change

18.710.019.3 7.215.013.318.415.911.516.410.414.2 8.2 9.417.9 5.9(1.0) 8.333.914.9 3.015.226.224.018.413.3

8.476.9

13.211.425.311.812.614.813.712.3 7.817.517.426.217.818.117.213.812.214.5 6.2 9.4 9.015.418.019.619.315.2

9.411.0

13.214.432.017.115.516.219.218.710.116.612.919.314.418.617.515.714.516.315.111.7 8.314.117.513.413.011.3

4263.407.2 4837.509.4Source: Finance Division/SBP

TABLE 5.6

LIST OF DOMESTIC, FOREIGN BANKS AND DFIs (As on 30-09-2006)

Nationalized Scheduled Banks 1 First Women Bank Ltd. 2 National Bank of Pakistan 3 The Bank of Khyber 4 The Bank of Punjab

Specialized Scheduled Banks 1 Industrial Development Bank of Pakistan 2 Punjab Provincial Co-operative Bank 3 SME Bank Limited 4 Zarai Taraqiati Bank Limited

Private Local Banks 1 Allied Bank Limited 2 Askari Commercial Bank Limited 3 Bank Al Falah Limited 4 Bank Al Habib Limited 5 My Bank Limited 6 Creacent Commercial Bank Limited 7 NIB Bank Limited 8 Faysal Bank Limited 9 Habib Bank Limited 10 KASB Bank Limited 11 MCB Bank Limited 12 Meezan Bank Limited 13 Metropolitan Bank Limited 14 Atlas Bank Limited 15 PICIC Commercial Bank Limited 16 Prime Commercial Bank Limited 17 Saudi Pak Commercial Bank Limited 18 Soneri Bank Limited 19 Union Bank Limited 20 United Bank Limited

212223

Arif Habib Rupali Bnak LimitedDubai Islamic Bank Pakistan LimitedBank Islami Pakistan Limited

Foreign Banks1ABN Amro Bank N.V.2Al-Baraka Islamic Bank B.S.C. (E.C.) American Express Bank Limited34Bank of Tokyo Mitsubishi Limited5Citibank N.A.6Deutshe Bank A.G.7Habib Bank A.G. Zurich8Hong Kong & Shanghai Banking Corporation Limited9Oman International Bank S.A.O.G.10Standard Chartered Bank

Development Financial Institutions1House Building Finance Corporation2Investment Corporation of Pakistan3Pak Kuwait Investment Company of Pakistan (Pvt) Limited4Pak Labya Holding Company (Pvt) Limited5Pak Oman Investment Company (Pvt) Limited6Pakistan Industrial Credit & Investment Corp. Ltd.7Saudi Pak Industrial & Agricultural Investment company (Pvt) Limited

Micro Finance Banks1Khushhali Bank2Network Micro Finance Bank Limited3The First Micro Finance Bank Limited4Rozgar Micro Finance Bank Limited5Tameer Micro Finance Bank Limited6Pak Oman Micro Finance Bank Limited

Source: State Bank of Pakistan and Finance Division.

TABLE 5.7

SCHEDULED BANKS IN PAKISTAN (Weighted Average Rates of Return on Advances)

(Percent)

As at thePreciousEnd ofMetalI. INTEREST BEARING1999Jun13.39 (15.57) Dec11.41 (16.50)2000Jun11.10 (11.81) Dec11.53 (12.73)2001Jun11.75 (13.87)2002Jun8.10 (8.14)2003Jun12.01 (12.01)2004Jun9.20 (9.20)2005Jun8.51 (8.51) Dec5.98 (6.05)2006Jun11.58 (11.58) Dec11.50 (11.50)

II. ISLAMIC MODES OF FINANCING1999Jun11.27 (10.01) Dec10.91 (16.28)2000Jun10.61 (11.10) Dec11.24 (11.32)2001Jun11.02 (11.28)2002Jun9.30 (9.50)2003Jun11.43 (11.43)2004Jun10.86 (10.86)2005Jun9.03 (9.03) Dec7.72 (7.72)2006Jun10.66 (10.66) Dec10.04 (10.04)

StockExchangeSecurities

14.15(14.16) 13.79(13.44) 13.76(13.45) 13.57(12.82) 13.54(14.06) 11.27(11.70) 11.97(11.82) 6.01 (6.01) 6.86 (8.29) 8.01 (8.50) 14.84(14.09) 11.73(12.43)

Merchan- dise

13.89(13.91) 14.56(14.35) 13.67(13.83) 12.88(13.68) 13.69(13.59) 13.12(13.13) 9.39 (9.67) 6.89 (7.08) 6.09 (6.01) 5.76 (5.47) 8.68 (8.51) 9.41 (9.33)

RealEstate

14.08(14.49) 13.75(14.78) 12.23(13.73) 12.90(13.62) 12.84(13.86) 12.72(12.98) 12.63(12.86) 9.08 (9.08) 6.68 (6.68) 8.47 (8.47) 10.23(10.23) 11.90(11.90)

Financial Obli- gations

14.95(15.13) 13.14(13.25) 13.65(14.03) 13.49(13.56) 13.07(13.00) 13.88(13.81) 7.74 (7.66) 7.08 (7.03) 6.76 (6.70) 9.69 (9.69) 10.31(10.31) 10.09(10.09)

TotalAdvances*

14.47(14.88) 14.09(14.75) 13.25(13.77) 13.08(13.58) 13.07(13.64) 13.00(13.29) 11.87(12.35) 8.41 (8.54) 7.01 (7.01) 8.18 (8.16) 9.91 (9.66) 11.00(11.11)

Machinery

15.19(15.18) 14.17(14.30) 13.15(13.15) 13.82(13.74) 13.50(13.55) 13.56(13.67) 15.66(15.68) 11.21(11.77) 4.59 (4.07) 7.53 (7.57) 8.55 (8.55) 9.70 (9.90)

Others

14.29(16.11) 14.07(16.29) 13.34(13.98) 12.93(13.36) 12.05(13.87) 12.47(13.39) 10.66(11.49) 9.04 (9.05) 8.86 (9.02) 9.79 (9.80) 7.59 (9.99) 11.43(11.68)

15.69(15.39) 14.42(14.51) 13.12(13.48) 13.51(13.68) 13.47(13.57) 13.09(13.33) 5.92 (5.77) 4.86 (5.28) 7.15 (7.17) 9.94(10.00) 10.03(10.20) 10.56(10.59)

15.12(15.03) 14.82(14.68) 13.48(14.07) 13.54 14.01 13.39(13.88) 12.85(12.73) 7.50 (7.95) 5.73 (5.96) 7.93 (7.95) 9.65 (9.68) 9.63 (9.66) 10.02(10.02)

15.75(15.92) 15.41(15.45) 14.31(14.39) 14.48(14.53) 14.53(14.42) 13.70(13.81) 9.39 (9.54) 6.61 (6.81) 7.80 (7.88) 9.27 (9.25) 9.14 (9.20) 10.60(10.57)

13.76(14.92) 13.57(14.84) 13.08(14.39) 12.97(14.24) 13.31(14.52) 13.47(14.05) 11.47(12.08) 9.27 (9.68) 10.16(10.22) 10.88(10.90) 11.23(11.26) 11.21(11.23)

14.49(14.57) 13.89(13.86) 13.42(13.40) 13.15(13.09) 13.84(13.86) 13.32(13.22) 7.79 (8.62) 5.88 (5.82) 8.21 (8.19) 9.47 (9.44) 9.25 (9.25) 9.73 (9.74)

15.00(15.87) 14.74(15.82) 13.83(14.94) 14.07(15.09) 14.03(14.78) 13.32(14.00) 10.31(10.84) 8.34 (9.01) 10.15(10.67) 11.31(11.80) 12.37(12.90) 12.46(12.83)

14.82(15.23) 14.49(14.96) 13.54(14.27) 13.59(14.24) 13.65(14.24) 13.20(13.52) 9.19 (9.71) 7.19 (7.60) 8.94 (9.13) 10.33(10.47) 10.68(10.83) 11.13(11.22)

Source: State Bank of Pakistan

* Weighted average rates shown in parentheses represent Private Sector.

TABLE 5.8

SALE OF GOVERNMENT SECURITIES THROUGH AUCTION

(Rs Million)

Fiscal Year/Securities1993-94MARKET TREASURY BILLS*A. Three Months Maturity Amount Offered í) Face Value- íi) Discounted Value- Amount Accepted í) Face Value- íi) Discounted Value- Weighted Average Yield Accepted í) Minimum % p.a.- íi) Maximum % p.a.-B. Six Months Maturity Amount Offered í) Face Value- íi) Discounted Value- Amount Accepted í) Face Value- íi) Discounted Value- Weighted Average Yield Accepted í) Minimum % p.a.- íi) Maximum % p.a.-C. Twelve Months Maturity Amount Offered í) Face Value- íi) Discounted Value- Amount Accepted í) Face Value- íi) Discounted Value- Weighted Average Yield Accepted í) Minimum % p.a.- íi) Maximum % p.a.- 2 Pakistan Investment Bonds(PIBs)** A. Amount Offered 03 Years Maturities- 05 Years Maturities- 10 Years Maturities- B. Amount Accepted- a) 3 Years Maturities -i) Amount Acepted(Face Val ii) Weighted average Yield # a) Minimum % p.a.- b) Maximum % p.a.- b) 5 Years Maturities -i) Amount Acepted(Face Val ii) Weighted average Yield # a) Minimum % p.a.- b) Maximum % p.a.- c) 10 Years Maturities -i) Amount Acepted(Face Val ii) Weighted average Yield # a) Minimum % p.a.- b) Maximum % p.a.-

Note *: MTBs was introduced in 1998-99**: PIBs was introduced in 2000-01

1994-95 1995-96 1996-97 1997-98 1998-99 1999-2000 2000-01

--

--

--

--

--

--

--

--

--

--

--

--

147,735143,719

45,98544,893

6.66014.616

82,24580,670

21,08520,725

6.9318.958

107,720105,147

72,72070,984

6.84912.221

--

--

--

--

--

--

--

--

--

--

--

--

343,937322,564

102,669 96,161

10.59915.740

205,980197,165

85,51581,909

7.09210.355

115,753109,916

69,53866,066

7.13812.876

--

--

--

--

--

--

--

--

--

--

--

--

283,038247,934

78,96069,148

10.09816.000

181,014164,416

51,20046,514

7.58410.871

75,12267,584

54,01748,431

7.77712.935

58,814 8,534 6,67443,60646,123 4677

----

-

--

-

--

-

--

----

-

--

-

--

-

--

----

-

--

-

--

-

--

----

-

--

-

--

-

--

----

-

--

-

--

-

--

----

-

--

-

--

-

--

12.42712.486

5,317

12.946 13.000

36,129

13.955 14.004(Contd.)

Table 5.8

SALE OF GOVERNMENT SECURITIES THROUGH AUCTION

(Rs. million)July-March 2006-07No.

1A

Securities

Market Treasury BillsThree Month MaturityAmount Offeredi) Face valueii) Discounted value

Amount Acceptedi) Face valueii) Discounted value

Weighted Average Yieldi) Minimum % p.a.ii) Maximum % p.a.

2001-02 2002-03 2003-04 2004-05 2005-06

128,358125,693

109,106108,332

216,637214,315

1,011,6591,002,708

389,173382,026

182,802179,265

72,86271,429

29,23129,042

115,575115,174

724,359716,768

210,541206,768

133,152130,592

5.36212.150

1.6585.815

0.9951.702

2.0177.479

7.5498.326

8.31488.6503

B Six Month MaturityAmount Offeredi) Face valueii) Discounted value

Amount Acceptedi) Face valueii) Discounted value

Weighted Average Yieldi) Minimum % p.a.ii) Maximum % p.a.

287,853276,882

747,018731,354

328,990326,114

470,885460,185

182,112173,289

99,32095,144

163,665157,934

349,009341,225

158,430157,256

256,914251,166

69,75267,094

66,92064,112

5.64512.555

1.63912.404

1.2122.076

2.5237.945

7.9688.487

8.48508.8250

C Twelve Month MaturityAmount Offeredi) Face valueii) Discounted value

Amount Acceptedi) Face valueii) Discounted value

Weighted Average Yieldi) Minimum % p.a.ii) Maximum % p.a.

202,984187,339

695,425665,337

476,719466,729

136,713128,569

555,757509,202

561,683515,387

84,56878,444

264,938253,908

241,019236,421

70,68865,799

459,440422,647

496,433455,605

6.38311.984

2.3566.941

1.3962.187

2.6918.401

8.4568.791

8.7865 9.0156(Contd.)

Note *: MTBs was introduced in 1998-99**: PIBs was introduced in 2000-01

Table 5.8

SALE OF GOVERNMENT SECURITIES THROUGH AUCTION

(Rs. in million) July-March 2006-07No.

2

A.

Securities

Pakistan Investment Bond

Amount Offered03 Years Maturity05 Years Maturity10 Years Maturity15 Years Maturity20 Years Maturity30 Years Maturity

Amount Accepted

(a) 03 Years Maturity.(i) Amount Accepted(ii) Weighted Average Yield # (1) Minimum % p.a. (2) Maximum % p.a.

(a) 05 Years Maturity.(i) Amount Accepted(ii) Weighted Average Yield # (1) Minimum % p.a. (2) Maximum % p.a.

(a) 10 Years Maturity.(i) Amount Accepted(ii) Weighted Average Yield # (1) Minimum % p.a. (2) Maximum % p.a.

(a) 15 Years Maturity. *(i) Amount Accepted(ii) Weighted Average Yield # (1) Minimum % p.a. (2) Maximum % p.a.

(a) 20 Years Maturity. *(i) Amount Accepted(ii) Weighted Average Yield # (1) Minimum % p.a. (2) Maximum % p.a.

(a) 30 Years Maturity.(i) Amount Accepted(ii) Weighted Average Yield # (1) Minimum % p.a. (2) Maximum % p.a.

2001-02 2002-03 2003-04 2004-05 2005-06

238,360 46,124 47,346144,890 - - -

107,695

211,963 26,074 45,620140,268 - - -

74,848

221,291 38,514 58,840 93,041 14,316 16,579 -

107,658

8,0162,4002,6033,013 0 0 -

771

16,012 3,896 6,526 5,590 0 0 -

10,161

100,207 21,770 17,407 26,030 9,850 13,150 12000

36,975B.

24,819

8.35612.475

9,651

1.7927.952

14,533

3.7344.235

100

0.0000.000

2,846

9.1589.389

3,982

9.3539.717

24,382

9.39212.994

14,369

3.1198.887

27,765

4.8675.270

427

0.0000.000

4,075

9.4209.646

4,523

9.64710.002

58,194

10.42013.981

50,828

4.0149.587

51,606

6.1687.127

244

0.0000.000

3,240

9.80059.8454

12,170

9.84610.507

-

--

-

--

6,996

7.6838.994

0

0.0000.000

-

--

4,300

10.95411.058

-

--

-

--

6,757

8.7068.993

0

0.0000.000

-

--

4,000

11.39211.392

---

---

---

---

---

8,00011.68011.68

Note *: MTBs was introduced in 1998-99**: PIBs was introduced in 2000-01