1. Banking &FinancialInstitutions

2. Presented byFarhana Shafique (1336-10)Rafia Tufail(1327-10)Sumrah Shakeel (1339-10)Iqra Khalid(1407-10)M.Sultan Bhatti(1319-10)M.Zeshan Sarwar(1455-10)M.Tariq Saleem (1328-10)Presented to:Prof. Naeem Amjad 3. What is lending? What are the mainsectors of lending?Lending: Grant to (someone) the use of (something) on theunderstanding that it shall be returned Allow (a person or organization) the use of (a sum of money)under an agreement to pay it back later, typically with interest 4. Strategic Objectives of SBP1- Broadening Access of Financial Services2- Ensuring Soundness of the FinancialSector3- Maintaining Price Stability with Growth4- Exchange and Reserve Management5- Strengthening of Payment Systems 5. Broadening Access of Financial ServicesOverview SBP in confluence with other stakeholders (government and thebanking sector) for financial broadening. Small & Medium Enterprises & Micro Finance, Islamic banking,Housing & Infrastructure financing and agriculture credit werethe main areas of focus in its development finance paradigm. 6. SME Finance Growth engines of any economy due to their ability to createjobs, foster entrepreneurship and to provide depth to theindustrial base of the economy 3.2 million business enterprises1 in Pakistan, and SMEsconstitute over 99 percent of the aggregate In retail trade, wholesale, restaurants and hotel business SMEactivity is 53% industrial establishments 20% service provision 22% 7. Contribution of SMEs (defined on the basis ofnumber of employees) Over 30 percent to GDP 25 percent in export earnings 35 percent in manufacturing value addition 8. Range of SMEs LoanAccording to a market study conducted by consultants from Bank academia 30.7 percent of SMEs do not have a bank account at all 85 percent do not take any loan from banks 50.5 percent consider it very difficult to get loans from a bank 9. SBPs Initiatives for Growth of SMEFinance Issuance of Separate Prudential Regulations for the SMEs, whichallow banks/DFIs lending to SMEs with a clean lending limit ofRs.3 millionSME Finance via Downscaling Approach The downscaling approach is designed to provide existingcommercial banks with the technical know-how they need inorder to be able to disburse loans to very small and SMEs. 10. Performance of Micro Finance Banks After the Year 2000-01 the formal financial sector was opened toMicrofinance Banks (MFBs). The policy allowed institutional diversity as both regulated andnon-regulated institutions were allowed to cater to financialservices needs of the poor. Recently, SBP developed a strategy for expanding Microfinanceoutreach, approved by the Prime Minister of Pakistan. This strategy provides Roadmap for expanding outreach fromexisting one million to three million borrowers by Year 2010. 11. Export Finance Regime Major avenue for meeting the funding requirements of exporters.Commodity-Wise Position Highest amount (Rs.219.823 billion) was disbursed to the textilesector. 12. Ensuring Soundness of the FinancialSector Undertaken to Strengthen the BankingSystem Stability Prescribes significant up-gradation of risk managementstandards and technological advancement within banks SBP has taken a number of initiatives and issued a roadmap forimplementation of Basel-II to ensure smooth transition to thenew regime Note: Basel-II Capital Accord provides a comprehensive and more risk sensitive capital allocation methodology 13. Maintaining Price Stability with Growth Most desirable pre-requisite for growth and has become theprimary objective of central banks in industrialized as well as indeveloping countries since 1990s Avoidance of high and volatile rate of inflation SBP tightened monetary conditions first by raising the CashReserve Requirement (CRR) and Statutory LiquidityRequirement (SLR) ratios Open market operations and pro-active liquidity managementstrategy 14. Exchange Rate & Reserve Management Foreign Exchange Market in the country continued to grow bothin terms of capacity and volumes, thus making a valuablecontribution to the overall economic objectives of the country On the SBPs FX Reserve Management front, although foreignexchange outflows including support for oil / commodities anddebt amounted to USD 10.9 billion, it were more than off-set byhealthy inflows of USD 13.4 billion on account of FDI,Privatization Proceeds, Bond Issuance, Remittances and MarketPurchases 15. Strengthening of Payment Systems Payment Systems and Electronic Funds Transfer Real-Time Gross Settlement System Society for Worldwide Inter-bank Financial Telecommunication(SWIFT) Management of ATM Cash and Downtime Utility Bills Payment through ATMs Performance of Retail Payment Systems E-banking Infrastructure Clearing of Paper Based Instruments 16. Types of LendingFund Based (Current and fixed assets)Non-Fund Based ( Fee based)Others 17. Types of LendingFund BasedOthers Overdraft Lease Finance Cash CreditsNon-Fund BasedHire-Purchase Bill Finance Issue of GuaranteesFinance Issue of LC Mortgage Loan Demand Loan Deferred PaymentRunning finance Term Loans GuaranteeRetail Loan Closed-Ended Open-Ended LoansBusiness Loan LoansCorporate FinanceConsumer FinanceProject finance 18. What is Fund Based Lending?Introduction: A Fund-based loan is a loan, often for a shortterm, secured by a companys assets In case of fund based lending bank commits the physicaloutflow of funds. As such, the funds position of the lendingbank gets affected. The fund based lending can be made bythe banks in the following forms 19. Overdraft A facility provided by the bank to its client, that he can withdrawa limited amount from the bank in excess of his original balanceFeatures: Current Account Application Credit Analysis Short Term Interest Securities Guarantee 20. Cash Credit A common form of advancing loan in all banks It grants against:- Personal Security GuaranteeClean CashSecure CashFinance Finance 21. Features of Cash CreditSeparate AccountSecuritiesPledgeTerm of FinanceInterest 22. Bill Finance Bankers purchase and discount Bills of Exchange and so provideloan. Credit the consumer account with the amount of the bill afterdeducting discount charges.Features: Account Income Customer Margin Bills 23. Demand Loan Demand loans are short term loans (typically no more than180 days) Not have fixed dates for repayment Carry a floating interest rate which varies according to theprime rate. Can be "called" for repayment by the lending institution atany time Demand loans may be unsecured or secured. 24. Term Loan A loan from a bank for a specific amount that has aspecified repayment schedule and a floating interest rate.Term loans almost always mature between one and 10years. Short term ( less than 1 ) Medium Term ( 1 to 5 ) Long Term ( more than 5) 25. Close Ended Loan Cannot be borrowed once theyve been repaid Make payments on closed-ended loans, the balance of theloan goes down Dont have any available credit, can use on closed-endedloans Need to borrow more money, would have to apply foranother loan Common types of closed-ended loans include mortgageloans, auto loans, and student loans. 26. What is Non-Fund Based Lending?Introduction: non fund based lending, the lending bank does notcommit any physical outflow of funds. As such, the fundsposition of the lending bank remains intact. The non fundbased lending can be made by the banks in two forms.It has two further kinds:- Issuance of Guarantee Issuance of LC 27. Issuance of Guarantee A loan which is granted on the basis of guarantee given bythe third reliable party. Loan can be provided without guarantee if the party ishighly reputable. In case of default of the party, the guarantor will be liable tothe bank 28. Issuance of LC A letter of credit is a promise to pay Banks issue letters of credit as a way to ensure sellers that theywill get paid as long as they do what theyve agreed to do Four parties that may involve in the process of letter of credit. Acustomer, issuing bank, third party(beneficiary),paying bank Issuing bank reserves the right to cancel the LC at any time andthe bank will be under no obligation to give a notice ofcancellation to the beneficiary 29. Deferred Payment Guarantee 30. Open Ended Loan Loans that you can borrow over and over. Credit cards and lines of credit are the most common typesof open-ended loans With both of these loans, you have a credit limit that youcan purchase against Each time you make a purchase, your available creditdecreases As you make payments, your available increases allowingyou to use the same credit over and over. 31. What are other modes of Lending? Lease Finance Hire-Purchase Finance Mortgage Loan Running Finance Business Loan Retail finance Corporate Finance Consumer Finance Project Finance 32. What are other modes of Lending? Bad credit loans A bad credit loan usually refers to a loan offered to a borrowerwho has a history of poor credit, and can be difficult to obtainat affordable rates Debt Consolidation loans Combine your existing debts into one debt consolidationloan, and you may significantly lower your monthlyrepayments and reduce the total cost 33. Bank Lending Some areas or fields in a country depending on itseconomic condition or government interest are prioritizedand are called priority sectors i.e. industry, agriculture.these may further be sub divided Banks are directed by the state bank of the country thatloans must be given on reduced interest rates withdiscounts to promote these fields. 34. Latest criteria of Lending Agriculture sector gets only 4.9 per cent share of the totalloans lent by the banks Corporate sector gains 63.5 per cent Banks staff gets 2.3 per cent Consumer financing attains 8 per cent SME gets 9.9 per cent. 35. Bank Lending Sectors Agriculture Small Scale Industries Small Road and Water Transport Operators Retail Trade Small Business Professional and Self-employed persons Education Housing Finance 36. Agriculture Sector The role of agriculture in Pakistan economy is of pivotalnature Due to diverse geographical and climatic conditions thecountry has tremendous potential for growth anddevelopment in agriculture Adequate and timely financial assistance to the farmerswill improve production potential of agriculture sector inthe country. 37. Agriculture SectorBanks authorized to provide agriculture credit to farmers. SBP does not restrain any bank from providing agricultural credit.However, under the Agricultural Credit Scheme indicative targetsare given to 21 banks on annual basis. These include; two specialized banks five major commercial banks and14 domestic private commercial banks 38. Conditions for obtaining Agri. LoanApplicationGenuine Farmer/TenantHolder of a NICNot a defaulter of any Bank Financial InstitutionApplicant must produce proper securities / sureties or other collaterals acceptable to the banks 39. If one brother was declared defaulter, dothe banks provide loan to other brothers? Every individual could be separately considered for grant ofloans if he had credit worthiness and separate landedproperty 40. Purposes of Agriculture Credit Complete value chain of activities such as production/croploans i.e. in-puts (seed, fertilizer, & pesticides etc.) Development loans (tractors &tube wells, agriculturalmachinery / equipments / implements etc.) Corporate farming Marketing Cold storage (godowns) on farm & off farm, silos,processing of crops (other than major crops), fruits &vegetables, grading, polishing, packing, transportation andexports of agricultural goods etc 41. Why the mark-up rate of Agricultural Creditis higher than the mark-up rate ofCommercial/Industrial Credit? In the post financial sector reforms era, banks markuprates are not fixed for different sectors Based on their cost structure and risk profile of theborrowers and the sector Required to use KIBOR as a bench mark for determiningpricing of their loans 42. Is there any limit for agriculture financing? No, there is no limit on agricultural loans Loan limit amount is assessed by the ACO/branch manageron the basis of financing appraisal or feasibility report etc 43. Is there any system/procedure underwhich farmers can get agricultural loans at their doorsteps? Mobile Credit Officers (MCOs) and Agricultural CreditOfficers of banks are visiting the farmers regularly toascertain the credit needs of the farmers and ensure itsavailability at their doorsteps and also provide technicalhelp for different crops. 44. Education Sector Though 62 years have been passed and 23 policies and actionplans have been introduced yet the educational sector is waitingfor an arrival of a savior the allocation of funds for education are very low. It is only 1.5 to2.0 percent of the total GDP It should be around 7% of the total GDP 45. Industrial SectorsIT Industry: Pakistans IT industry has been rising steadily since the last three years. The total number of IT companies increased to 1306 and the totalestimated size of IT industry is $2.8 billion In 2007, Pakistan was for the first time featured in the Global ServicesLocation Index by A.T. Kearney and was rated as the 30th best locationfor offshoring By 2009, Pakistan had improved its rank by ten places to reach 20th. 46. Industrial Sectors ContdTextiles 3% of United States imports regardingclothing and other form of textiles iscovered by Pakistan Textile exports in 1999 were $5.2 billion and rose tobecome $10.5 billion by 2007. Textile exports managed to increase at a very decentgrowth of 16% in 2006. 47. Industrial Sectors ContdMining Based on available information, the countrys more than 6,00,000 km of outcrops area demonstrates varied geological potential for metallic andnon-metallic mineral deposits. The discovery of coal deposits having over 175 billion tonesof reserves at That in the Sindh province has given animpetus to develop it as an alternate source of energy. Currently about 52 minerals are under exploitationalthough on small scale. The current contribution of the mineral sector to the GDBis about 0.5% 48. Industrial Sectors ContdSME: In Pakistan SMEs have a significantcontribution in the total GDP of Pakistan, according to SMEDA and Economic survey reports,the share in the annual GDP is 40% Small and medium scale firms represent nearly 90% ofall the enterprises in Pakistan and employ 80% of thenon-agricultural labor force. 49. Industrial Sectors ContdAutomobile industry Pakistan is an emerging market for automobilesand automotive parts offers immense businessand investment opportunities. The total contribution of Auto industry to GDP in 2007 is2.8% which is likely to increase up to 5.6% in the next 5years. Auto sector presently, contributes 16% to themanufacturing sector which also is expected to increase25% in the next 7 years Car ownership in Pakistan has risen by 40% per annumsince 2001 50. Industrial Sectors ContdCNG industry As of 2010, Pakistan is one of the largestusers of CNG (compressed natural gas) in the world. It has provided employment to over 50,000 people inPakistan Presently, more than 3,000 CNG stations are operatingin the country in 99 cities and towns, and 1000 morewould be set up in the next two years. 51. Industrial Sectors ContdCement industry In 1947, Pakistan had inherited four cement plants with a total capacity of 0.5 milliontons Some expansion took place in 195666 but could not keeppace with the economic development and the country hadto resort to imports of cement in 1976-77 and continued todo so till 1994-95. The cement sector consisting of 27 plants is contributingabove Rs. 30 billion to the national exchequer in the formof taxes 52. Procedure of lending Activities Covered in the Bank Loans Policy Procedure Assessing Capital Requirements Preparing the Loan Application Applying for the Loan Closing the Loan Loan Service and Reporting Loan Analysis Forms Included in the Bank Loans Policy Procedure Loan Application Checklist Form 53. Advantages of Bank Lending Competitive Interest rates(as compared to unconventionallenders) Easy availability(because of banks profit and depositors ofthe bank) No need to specify use of the money(in case of personalloans) Speed(within one hour if appropriate documents areavailable) Credit(businesses using bank loans increase Their stability and credit score) 54. Advantages Contd Growth(in size of business and more profits) Uses(can be used in various dimensions) No need for collateral(in case of personal loans) Good lending terms and relations with the bank(bankfacilitates is lending criteria is met properly) 55. Disadvantages of Bank Lending Borrowers over-borrow(loans should be according torepayment capacity) Prepayment penalty(payment of loan before the stipulateddate, charges penalty) Restrictions(good credit history and about the use of debt) Cash flow(decreasing cash flow due to too muchborrowing) Possible Delay In Getting the Loan(busy personnel andinappropriate documentation) Not Everyone Qualifies for a Bank Loan(good credit scorerequired) 56. Disadvantages Contd Entire amount not granted(usually 70 or 80% granted) Inflexible( usually in payment terms) Security(lose of security in case of defaults) 57. STATE BANK OF PAKISTAN CENTRAL BANK OF PAKISTAN 30 July , 2011National Data Summary Page Real SectorFiscal Sector Financial SectorExternal SectorPopulation Observations Data CategoryUnit Period of Previous Links at SourceLatest datalatest datadataReal SectorNational AccountsGross DomesticProduct (CurrentMillion Rs.FY11 18,062,90114,836,536FBSPrices)Agriculture Million Rs.FY113,698,658 2,978,950 CropsMillion Rs.FY111,788,676 1,344,994 LivestockMillion Rs.FY11 1,802,221 1,533,716 FishingMillion Rs.FY1161,403 60,347 Forestry Million Rs.FY1146,358 39,893 58. IndustryMillion Rs. FY11 4,323,057 3,577,659Manufacturing Million Rs. FY11 3,167,947 2,487,069Mining and QuarryingMillion Rs. FY11431,907 371,233ConstructionMillion Rs. FY11 396,777352,530Electricity & GasMillion Rs. FY11 326,426366,827DistributionServicesMillion Rs. FY11 9,085,772 7,509,906 Wholesale & Retail Trade Million Rs. FY11 3,115,906 2,464,342 Transport Storage &Million Rs. FY11 2,132,844 1,846,735Communication Finance and InsuranceMillion Rs. FY11 649,701616,116Ownership of DwellingsMillion Rs. FY11 401,687345,555Public Administration &Million Rs. FY11 975,296757,140DefenceCommunity, Social &Million Rs. FY11 1,810,338 1,480,018Personal Services 59. Gross DomesticProduct (Constant Million Rs. FY11 5,817,406 5,681,531 FBSPrices)-1Agriculture Million Rs. FY11 1,216,523 1,201,945Crops Million Rs. FY11 509,393519,132Livestock Million Rs. FY11 670,743 646,783Fishing Million Rs. FY1122,04121,626ForestryMillion Rs. FY1114,34614,404IndustryMillion Rs. FY11 1,499,360 1,500,345Manufacturing Million Rs. FY11 1,085,440 1,054,276Mining and QuarryingMillion Rs. FY11140,971140,378ConstructionMillion Rs. FY11146,169144,985Electricity & GasMillion Rs. FY11 126,780 160,706DistributionServicesMillion Rs. FY11 3,101,523 2,979,241Wholesale & RetailMillion Rs. FY11 1,000,477 963,368TradeTransport Storage &Million Rs. FY11581,388 574,101CommunicationFinance and Insurance Million Rs. FY11260,172277,555Ownership of Dwellings Million Rs.FY11158,707 155,916Public Administration &Million Rs. FY11 385,506 340,508DefenceCommunity, Social &Million Rs. FY11715,273667,793Personal Services