INTERNSHIP REPORT

AT
STATE BANK OF PAKISTAN

AAMNA SHAHID

ROLL NO 0 1 0 8 BH BAF 2 0 1 5

SESSION (2015-2019)

START DATE: JUNE16, 2019 END DATE: JULY26, 2019

DEPARTMENT OF COMMERCE AND FINANCE

GC UNIVERSITY LAHORE
 INTERNSHIP REPORT
AT
STATE BANK OF PAKISTAN

Submitted to the GC University, Lahore in partial fulfillment of the requirements for the award
of the degree of
Bachelor (Hons.) of Science in

BUSINESS ACCOUNTING AND FINANCE

By

AAMNA SHAHID

ROLL NO 0 1 0 8 BH BAF 2 0 1 5

SESSION (2015-2019)

DEPARTMENT OF COMMERCE AND FINANCE

GC UNIVERSITY LAHORE

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INTERNSHIP JOINING LETTER

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INTERNSHIP CERTIFICATE

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 STUDENT DECLARATION

I, AAMNA SHAHID, Roll No. 0108-BH-BAF-2015, student of Bachelor (Hons.) in the subject
of Business Accounting and Finance, Session 2015-2019, hereby declare that the matter
contained in this internship report titled, “Internship at State Bank of Pakistan” is my own work
and has not been printed, published and submitted as a report/research work, thesis or publication
in any form in any University, Research institution etc. within or outside of Pakistan.

Date: ______________ _________________________

Aamna Shahid

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 INTERNSHIP COMPLETION CERTIFICATE

It is to certify that the internship work contained in this internship report titled, “Internship at
State Bank of Pakistan” is carried out and completed by AAMNA SHAHID, Roll No. 0108-
BH-BAF-2015, under my supervision during his Bachelor (Hons.) studies in the subject of
Business Accounting and Finance.

Dated: ___________________ _______________________

Mr. Safyan Majid
(Supervisor)

Lecturer
Department of Commerce and Finance
GC University, Lahore

_______________________ ______________________
Ms. Nosheen Rasool Controller of Examinations
In-charge
GC University, Lahore
Department of Commerce and Finance
GC University, Lahore

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 ORGANIZATIONAL INFORMATION
ORGANIZATION
State Bank of Pakistan
DEPARTMENTS
Banking Inspection Department
Banking Policy and Regulation Department
Exchange Policy Department
Banking Conduct and Consumer Protection Department
Off-site Supervision and Enforcement Department
Financial Stability Department
Islamic Banking Department
Infrastructure, Housing and SME Finance Department
Domestic Market and Monetary Management Department
Agriculture Credit and Microfinance Department
Finance Department
Treasury Operations Department
International Markets and Investment Department
Risk Management Department
Human Resource Department
Internal Audit and Compliance Department
External Relations Department
INTERNSHIP TENURE
Six Weeks (17th June, 2019 – 26th July, 2019)
POSITION
Intern
PLACEMENT IN DEPARTMENT
Banking Inspection Department
MAJOR BUSINESS
Central Bank of Pakistan

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 ACKNOWLEDGMENT
The time I spent in State Bank of Pakistan as an intern from 17 th June, 2019 to 26th July, 2019
was a memorable one for me as it was rich in experience and helped me unveil my potential. My
experience in SBP will greatly influence my professional life and will foster my personal
development and abilities. The efforts I have taken in this internship report would not have been
possible without support and assistance of many people. I would like to extend my sincere
gratitude to all of them.
First and foremost, I would like to pay my gratitude to Allah Almighty for granting me
knowledge, insight, ability and proficiency.
Secondly, I would like to thanks my parents for bestowing me encouragement and enthusiasm.
Sincerely want to present my thanks to them for standing by my side and motivating me in every
aspect of my life.
Further, I would like to thank my supervisor Mr. Safyan Majid for his guidance throughout my
internship. I feel blessed having him as my mentor who promptly responded my queries and
assisted me in every possible way.
I would like to express my deepest thank to Ms. Nosheen Rasool, who helped a great deal in my
selection for this internship. I would like to extend my regards to Mr. Ali Raza Elahi and Mr.
Hessan Zahid for their worthy suggestions and motivation.
Then I would like to sincerely thank my supervisor in SBP, Mr. Khurram Fayyaz. I am highly
indebted to him for his constant supervision throughout my internship in SBP as well as for
proffering me necessary information regarding my project in SBP.
I would further like to thank my department coordinator Mr. Amir Ansar and Assistant Director
of BID I Mr. Muhammad Faizan Amir for their ultimate cooperation and valuable consultation.
Lastly, I want to present my gratitude to Ms. Zeila Tahir and Mr. Usman Pirani for selecting me
for this valuable internship and for their continuous support throughout the internship.

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 EXECUTIVE SUMMARY
This report is result of my efforts I had put forth in six weeks internship in Central Bank of
Pakistan (State Bank of Pakistan). I had learned a great deal in this internship program offered by
HR Department of State Bank and granted me with a platform to attain professional work
experience in a conductive environment. The main objective of my internship was to scrutinize
the working frame work of State Bank of Pakistan and to explore its key functional areas along
with its strategical impact on economy of Pakistan. After all this scrutiny, I have concocted this
exposition in order to share my knowledge and experiences procured during this internship
program. The report profoundly targets the history, organizational hierarchy, functions, financial
analysis and departmental working of State Bank of Pakistan.
Chapter 1 rations introduction and historical background of State Bank of Pakistan along with its
departmental workings and tasks. State Bank of Pakistan shares a unique history and had been
awarded with the title of “Central Authority of Pakistan”. State Bank of Pakistan covered the role
of regulatory authority in newly formed state (Pakistan) and works for the growth of credit and
monetary system of Pakistan while maintaining its stability. Further the revision of core values is
being deliberated in the report. The conventional and developmental activities executed by State
Bank of Pakistan are scrupulously mentioned which are followed by departments and their
workings.
The next chapter displays the working, divisions, processes, schemes and strategical plans
adopted by the department in which I was placed i.e. Banking Inspection Department. The
chapter is commenced with the tasks performed by this department and their regulatory
processes. Later on allocations of banking institutions and inspection procedures were listed.
Upcoming chapter of concerned report establishes generation and utilization of funds
accompanied with software employed by State Bank of Pakistan. The report also constitutes
meticulous financial evaluation via horizontal, vertical and ratio analysis of State Bank of
Pakistan. Afterwards the erudition and experiences availed in this internship are shared. In
winding up, conclusion is drawn and recommendations are ventilated. Succinctly, this report
perspicuously portrays my understanding built in this internship and frameworks residing in
State Bank of Pakistan.

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 TABLE OF CONTENTS
CHAPTER 1 ..................................................................................................................................................1
1.1 INTRODUCTION TO STATE BANK OF PAKISTAN ....................................................................1
1.2 HISTORY OF STATE BANK OF PAKISTAN .................................................................................1
1.3 ORGANIZATIONAL STRUCTURE .................................................................................................3
1.3.1 GOVERNOR ................................................................................................................................4
1.3.2 CENTRAL BOARD .....................................................................................................................4
1.3.3 EXECUTIVE MANAGEMENT ..................................................................................................4
1.3.4 DEPUTY GOVERNOR ...............................................................................................................4
1.3.5 CORPORATE SECRATARY......................................................................................................4
1.3.6 BOARD COMMITTEES .............................................................................................................4
1.3.7 MANAGEMENT COMMITTEES ..............................................................................................5
1.3.8 CORPORATE MANAGEMENT TEAM (CMT) ........................................................................6
1.3.9 OFFICER GRADING IN STATE BANK OF PAKISTAN.........................................................8
1.4 VISION 2020 OF STATE BANK OF PAKISTAN ............................................................................9
1.4.1 CORE VALUES...........................................................................................................................9
1.5 BUSINESS VOLUME OF STATE BANK OF PAKISTAN ...........................................................11
1.5.1 TOTAL REVENUE ...................................................................................................................11
1.5.2 TOTAL DEPOSITS ...................................................................................................................12
1.5.3 TOTAL INVESTMENT ............................................................................................................13
1.5.4 TOTAL LOANS, ADVANCES AND BILL OF EXCHANGE ................................................14
1.6 FUNCTIONS OF STATE BANK OF PAKISTAN ..........................................................................15
1.6.1 TRADITIONAL FUNCTIONS ..................................................................................................16
1.6.2 DEVELOPMENT FUNCTIONS ...............................................................................................23
1.7 SUBSIDIARIES OF STATE BANK OF PAKISTAN .....................................................................28
1.7.1 BANKING SERVICE CORPORATION (BSC) .......................................................................28
1.7.2 NATIONAL INSTITUTE OF BANKING AND FINANCE (NIBAF) .....................................33
1.7.3 DEPOSIT PROTECTION CORPORATION (DPC) .................................................................36
1.7.4 PAKISTAN SECUIRITY PRINTING CORPORATION (PSPC).............................................36
1.8 MAIN INSTRUEMENTS OF STATE BANK OF PAKISTAN ......................................................37
1.8.1 3-DAY REPO RATE OF SBP ...................................................................................................37
1.8.2 OPEN MARKET OPERATIONS ..............................................................................................37
1.8.3 TREASURY BILLS AUCTION ................................................................................................37

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 1.8.4 STATUTORY CASH RESERVE REQUIREMENT (CRR) .....................................................37
1.8.5 STATUTORY LIQUIDITY REQUIREMENT (SLR) ..............................................................38
1.9 DEPARTMENTS OF STATE BANK OF PAKISTAN ...................................................................38
1.9.1 BANKING POLICY GROUP ....................................................................................................38
1.9.2 FINANCIAL MARKETS AND RESERVE MANAGEMENT GROUP (FMRMG) ...............43
1.9.3 HUMAN RESOURCES GROUP ..............................................................................................49
1.9.4 DEVELOPMENT FINANCE GROUP (DFG) ..........................................................................51
1.9.5 FINANCIAL RESOURCE MANAGEMENT GROUP (FRMG) .............................................57
1.9.6 CHIEF ECONOMIC ADVISOR GROUP .................................................................................62
1.9.7 OPERATIONS GROUP .............................................................................................................68
1.9.10 GOVERNOR OFFICE GROUP ...............................................................................................74
1.9.11 BANKING SUPERVISION GROUP (BSG) ...........................................................................77
CHAPTER 2 ................................................................................................................................................82
2.1 BANKING INSPECTION DEPARTMENT.....................................................................................82
2.1.2 GOALS OF BID .........................................................................................................................83
2.1.3 OBJECTIVES OF BID...............................................................................................................83
2.1.4 ALLOCATION OF BANKING AND FINANCIAL INSTITUTIONS.....................................84
2.1.5 DIVISIONS OF BID I ................................................................................................................88
2.1.6 TYPES OF ON-SITE INSPECTIONS .......................................................................................92
2.1.7 ON-SITE INSPECTION FRAMEWORK .................................................................................93
2.1.8 INSPECTION PLANNING .......................................................................................................93
2.1.9 PRE-INSPECTION PLANNING ...............................................................................................94
2.1.10 ON SITE INSPECTION PROCESS ........................................................................................94
CHAPTER 3 ................................................................................................................................................96
3.1 SOFTWARE USED BY STATE BANK OF PAKISTAN ...............................................................96
3.2 SOURCES OF FUNDS .....................................................................................................................96
3.3 GENERATION OF FUNDS .............................................................................................................98
3.4 ALLOCATION OF FUNDS .............................................................................................................99
CHAPTER 4 ..............................................................................................................................................101
4.1 FINANCIAL STATEMENTS OF STATE BANK OF PAKISTAN ..............................................101
4.1.1 BALANCE SHEET (2014-2018) .............................................................................................101
4.1.2 INCOME STATEMENT (2014-2018) .....................................................................................105
4.2 HORIZONTAL ANALYSIS...........................................................................................................106
4.2.1 HORIZONTAL ANALYSIS OF BALANCE SHEET (2014-2018) .......................................106

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 4.2.2 HORIZONTAL ANALYSIS OF INCOME STATEMENT (2014-2018) ...............................108
4.2.3 INTERPRETATION OF HORIZONTAL ANALYSIS ...........................................................109
4.3 VERTICAL ANALYSIS.................................................................................................................112
4.3.1 VERTICAL ANALYSIS OF BALANCE SHEET (2014-2018) .............................................112
4.3.2 VERTICAL ANALYSIS OF INCOME STATEMENT (2014-2018) .....................................114
4.3.3 INTERPRETATION OF VERTICAL ANALYSIS.................................................................115
4.4 FINANCIAL RATIOS OF STATE BANK OF PAKISTAN..........................................................118
4.4.1 RETURN ON EQUITY ...........................................................................................................118
4.4.2 RETURN ON ASSETS ............................................................................................................119
4.4.3 DEBT TO EQUITY RATIO ....................................................................................................121
4.4.4 EQUITY RATIO ......................................................................................................................122
4.4.5 ASSET TURN OVER RATIO .................................................................................................124
4.4.6 EQUITY TURN OVER RATIO ..............................................................................................125
4.4.9 FIXED ASSET TURN OVER RATIO ....................................................................................127
4.4.10 NET INTEREST MARGIN ...................................................................................................128
4.4.11 EQUITY MULTIPLIER ........................................................................................................130
4.4.12 ADMIN EXPENSES TO PROFIT BEFORE TAX RATIO ..................................................131
4.4.13 INVESTMENT TO TOTAL ASSETS ...................................................................................133
4.4.14 ADVANCES TO DEPOSIT RATIO .....................................................................................134
4.4.15 LOAN TO ASSET RATIO ....................................................................................................136
4.4.16 MARKUP EXPENSE TO MARKUP INCOME ...................................................................137
CHAPTER 5 ..............................................................................................................................................140
5.1 SWOT ANALYSIS OF STATE BANK OF PAKISTAN ..............................................................140
5.1.1 STRENGTHS ...........................................................................................................................140
5.1.2 WEAKNESS ............................................................................................................................142
5.1.3 OPPURTUNITIES ...................................................................................................................142
5.1.4 THREATS ................................................................................................................................143
CHAPTER 6 ..............................................................................................................................................144
6.1 LEARNING AS AN INTERN ........................................................................................................144
6.2 EXPERIENCE AND KNOWLEDGE ACQUIRED .......................................................................156
6.3 IMPACT ON CAREER ..................................................................................................................157
CHAPTER 7 ..............................................................................................................................................158
7.1 CONCLUSION ...............................................................................................................................158
7.2 RECOMMENDATIONS ................................................................................................................159

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REFRENCES ............................................................................................................................................161
ANNEXURE .............................................................................................................................................162

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 TABLE OF FIGURES
Figure 1 ORGANIZATIONAL STRUCTURE OF SBP ..............................................................................7
Figure 2 OFFICER GRADING IN SBP .......................................................................................................8
Figure 3 TOTAL REVENUE ......................................................................................................................11
Figure 4 TOTAL DEPOSITS ......................................................................................................................12
Figure 5 TOTAL INVESTMENT ...............................................................................................................13
Figure 6 TOTAL LOAN, ADVANCES AND BILL OF EXCHANGE .....................................................14
Figure 7 FUNCTIONS OF SBP ..................................................................................................................15
Figure 8 COMPOSITION OF FINANCIAL SECTOR ..............................................................................18
Figure 9 DEPARTMENTS OF BSC ...........................................................................................................30
Figure 10 TRAINING PROGRAMS OFFERED BY NIBAF TO VARIOUS INSTITUTES....................34
Figure 11 BANKING POLICY GROUP ....................................................................................................38
Figure 12 BPRD DIVISIONS .....................................................................................................................39
Figure 13 EPD DIVISIONS ........................................................................................................................42
Figure 14 FMRMG......................................................................................................................................43
Figure 15 IMID DIVISIONS.......................................................................................................................44
Figure 16 FX AND LIQUIDITY MANAGEMENT DIVISION ................................................................44
Figure 17 PERFORMANCE, RELATIONSHIP AND PRODUCT REVIEW DIVISION ........................45
Figure 18 FIXED INCOME INVESTMENT DIVISION ...........................................................................46
Figure 19 DMMD DIVISIONS ...................................................................................................................48
Figure 20 HR GROUP ................................................................................................................................49
Figure 21 DIVISIONS OF HRD .................................................................................................................50
Figure 22 DEVELOPMENT FINANCE GROUP ......................................................................................51
Figure 23 IBD DIVISIONS .........................................................................................................................52
Figure 24 ACMD DIVISIONS ....................................................................................................................54
Figure 25 IH & SMEFD DIVISIONS .........................................................................................................56
Figure 26 FRMG .........................................................................................................................................57
Figure 27 DIVISIONS OF FINANCE DEPARTMENT ............................................................................58
Figure 28 RMD DIVISIONS.......................................................................................................................59
Figure 29 DIVISIONS OF TOD .................................................................................................................61
Figure 30 CHIEF ECONOMIC ADVISOR GROUP..................................................................................62
Figure 31 MPD DIVISIONS .......................................................................................................................63
Figure 32 RESEARCH DEPARTMENT DIVISIONS ...............................................................................64
Figure 33 EPRD DIVISIONS .....................................................................................................................65
Figure 34 OPERATIONS GROUP .............................................................................................................68
Figure 35 PSD DIVISIONS ........................................................................................................................71
Figure 36 DIVISIONS OF SBP ..................................................................................................................72
Figure 37 GOVERNOR OFFICE GROUP .................................................................................................74
Figure 38 ERD DIVISIONS........................................................................................................................74
Figure 39 IACD DIVISIONS ......................................................................................................................76
Figure 40 BSG .............................................................................................................................................77
Figure 41 BC & CPD DIVISIONS .............................................................................................................77
Figure 42 FSD DIVISIONS ........................................................................................................................79
Figure 43 OCED DIVISIONS .....................................................................................................................80
Figure 44 ORGANOGRAM OF BID I .......................................................................................................86
Figure 45 ORGANOGRAM OF BID II ......................................................................................................87
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Figure 46 SOURCES OF FUNDS ..............................................................................................................97
Figure 47 SOURCES OF FUNDS ..............................................................................................................97
Figure 48 GENERATION OF FUNDS .......................................................................................................98
Figure 49 GENERATION OF FUNDS .......................................................................................................99
Figure 50 ALLOCATION OF FUNDS .....................................................................................................100
Figure 51 ALLOCATION OF FUNDS .....................................................................................................100
Figure 52 TOTAL ASSETS 2018 .............................................................................................................103
Figure 53 TOTAL LIABILITIES 2018 .....................................................................................................104
Figure 54 TOTAL EQUITY 2018.............................................................................................................104
Figure 55 TREND OF PROFIT AFTER TAXATION .............................................................................106
Figure 56 TOTAL ASSETS ......................................................................................................................110
Figure 57 TOTAL LIABILITIES ..............................................................................................................110
Figure 58 TOTAL EQUITY ......................................................................................................................111
Figure 59 NET MARKUP .........................................................................................................................111
Figure 60 TOTAL PROFIT AFTER TAX ................................................................................................112
Figure 61 TOTAL LIABILITIES ..............................................................................................................116
Figure 62 TOTAL EQUITY ......................................................................................................................116
Figure 63 NET MARKUP .........................................................................................................................117
Figure 64 TOTAL PROFIT AFTER TAXATION....................................................................................117
Figure 65 ROE...........................................................................................................................................118
Figure 66 ROE...........................................................................................................................................119
Figure 67 ROA ..........................................................................................................................................120
Figure 68 ROA ..........................................................................................................................................120
Figure 69 DEBT TO EQUITY ..................................................................................................................121
Figure 70 DEBT TO EQUITY ..................................................................................................................122
Figure 71 EQUITY RATIO.......................................................................................................................123
Figure 72 EQUITY RATIO.......................................................................................................................123
Figure 73 ASSET TURN OVER RATIO .................................................................................................124
Figure 74 ASSET TURN OVER RATIO .................................................................................................125
Figure 75 EQUITY TURN OVER RATIO ...............................................................................................126
Figure 76 EQUITY TURN OVER RATIO ...............................................................................................126
Figure 77 FIXED ASSET TURN OVER RATIO .....................................................................................127
Figure 78 FIXED ASSET TURN OVER RATIO .....................................................................................128
Figure 79 NET INTEREST MARGIN ......................................................................................................129
Figure 80 NET INTEREST MARGIN ......................................................................................................129
Figure 81 EQUITY MULTIPLIER ...........................................................................................................130
Figure 82 EQUITY MULTIPLIER ...........................................................................................................131
Figure 83 ADMIN EXPENSE TO PROFIT BEFORE TAX RATIO .......................................................132
Figure 84 ADMIN EXPENSE TO PROFIT BEFORE TAX RATIO .......................................................132
Figure 85 INVESTMENT TO TOTAL ASSETS .....................................................................................133
Figure 86 INVESTMENT TO TOTAL ASSETS .....................................................................................134
Figure 87 ADVANCES TO DEPOSIT RATIO ........................................................................................135
Figure 88 ADVANCES TO DEPOSIT RATIO ........................................................................................135
Figure 89 LOAN TO ASSET RATIO .......................................................................................................136
Figure 90 LOAN TO ASSET RATIO .......................................................................................................137
Figure 91 MARKUP EXPENSE TO MARKUP INCOME ......................................................................138

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Figure 92 MARKUP EXPENSE TO MARKUP INCOME ......................................................................138
Figure 93 SWOT ANALYSIS...................................................................................................................140
Figure 94 AUDIT CYCLE ........................................................................................................................151

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 ACRONYMS
SBP State Bank of Pakistan
OG Officer Grade
BSC Banking Service Corporation
NIBAF National Institute of Banking and Finance
PSPC Pakistan Security and Printing Corporation
DPC Deposit Protection Corporation
CFT Combating the Financing of Terrorism
AML Anti-Money Laundering
NIFT National Institutional Facilitation Technology
RTGS Real Time Gross Settlement
EFS Export Finance Scheme
SBOTS State Bank Officers Training Scheme
CAMELS Capital, Asset, Management, Earnings, Liquidity, Systems
MFBs Micro Finance Banks
DFIs Development Finance Banks
ECs Exchange Companies
IS Information System
FEOD Foreign Exchange Operations Department
BSG Banking Supervision Group
SWIFT Society for Worldwide Inter-bank Financial Telecommunication
FSD Financial Stability Department
BCO Banking Company Ordinance
KYC Know Your Customer
ICAP Institute of Charter Accountants of Pakistan
FATF Financial Action Task Force
QAD Quality Assurance Division
BID Banking Inspection Department

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 CHAPTER 1
1.1 INTRODUCTION TO STATE BANK OF PAKISTAN

Central bank is vital for functioning of banking system in a country. The first Central Bank was
established after discussions in Nuremberg Conference in 1578 in Geneva, Switzerland to cover
loopholes of Banking and Financial System. Central Bank holds the position of regulatory
authority in a country and is responsible for economic stability of the country. The role of central
bank becomes more prominent after financial crisis of 2008. In Pakistan, State Bank of Pakistan
performs the role of central bank under “SBP Act 1956”. This act enables State Bank of Pakistan
to sketch and implement monetary policy and guarantee fiscal security in economy. Any
weakness in monetary policy can cause disturbance in stability of financial system. State Bank of
Pakistan Order 1948 handed the bank the duty to “regulate the issue of bank notes and keep
reserves for the purpose of securing monetary stability in Pakistan and to operate credit system
of country and its currency to its advantage”.
State Bank of Pakistan regulates and monitors financial system and supervises banking system. It
undertakes the function of processing Islamization of banking system. It actively plays its role in
controlling inflation and interest rate along with issuance of notes and regulation of money
supply. It executes both development and traditional functions and ensures monetary stability in
Pakistan.
1.2 HISTORY OF STATE BANK OF PAKISTAN

State Bank of Pakistan was inaugurated by Quaid-e-Azam Muhammad Ali Jinnah on 1 st July,
1948. State Bank of Pakistan is idiosyncratic in a sense that it started working in a newly born
state where it had to establish financial and banking system.
Before 1947 duties of central bank were performed by Reserve Bank of India. After
independence, reserves maintained by Reserve Bank of India were disseminated by British
Government with a proportion of 30% (for Pakistan) and 70% (for India). Quaid-e-Azam
detected the need of developing a central bank for smooth working of future banking system and
financial system in newly formed state. He struggled hard for its development and finally
incorporated State Bank of Pakistan to act as regulatory authority in Pakistan. State Bank of
Pakistan faced many challenges and obstacles with full commitment. State Bank of Pakistan was
handed over the responsibility of growth of credit and monetary system while maintaining its
stability. This regulatory body was laid under State Bank of Pakistan Order 1948 which was
later on altered in 1974 with nationalization of State Bank of Pakistan. With this alteration, scope
of State Bank of Pakistan’s function became wide. Notes of Reserve Bank of India were
superseded by notes of Pakistan. State Bank of Pakistan started operating under State Bank of
Pakistan Act 1956. This act provided constitution to State Bank of Pakistan for its working and
regulation. This act enabled State Bank of Pakistan to “secure monetary stability and regulate
credit and monetary system of Pakistan with best utilization of Pakistan’s productive resources”.
In 1994, State Bank of Pakistan was awarded autonomy and in 1997 this autonomy became
stronger with the issuance of three amendment ordinances that included
 Bank Nationalization Act 1974
 State Bank of Pakistan 1956
 Banking Company Ordinance 1962
After this, State Bank of Pakistan performed its regulation and supervision tasks without any
pressure. State Bank of Pakistan enhanced accountability of Board of Directors and Executives
of banks and limited Government borrowing from State Bank of Pakistan. Later on State Bank of
Pakistan continued performing its macro-economic and micro economic functions with full
autonomy.

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 VISION OF STATE BANK OF PAKISTAN

“To be an independent and creditable

Central Bank that achieves monetary and
financial stability and inclusive financial
sector development for long term benefit
of people of Pakistan”.

MISSION OF STATE BANK OF PAKISTAN

“To promote monetary and financial

stability and foster a sound and dynamic
financial system, so as to achieve
sustained and equitable economic growth
and prosperity in Pakistan”.

1.3 ORGANIZATIONAL STRUCTURE

The organizational structure of State Bank of Pakistan is in accordance with State Bank of
Pakistan Act 1956 which is altered when needed to enhance its autonomy. The chairperson of
independent board is termed as Governor of State Bank of Pakistan who is appointed by
President of Pakistan. Governor of independent board is executive where as other members of
this board are non-executives. This independent Central Board forms a committee for the
purpose to review topics to be discussed in Central Board that includes members from
management and non-executive directors. State Bank of Pakistan’s organizational structure also
comprise of Corporate Management Team for discussion of issues.

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1.3.1 GOVERNOR

Governor of State Bank of Pakistan is selected for the duration of three years by President of
Pakistan. The current governor of State Bank of Pakistan is Reza Baqir who was appointed on 4 th
May, 2019. An acting governor is sometimes appointed on resignation of Ex-governor. Governor
of State Bank of Pakistan is assisted by Deputy and Executive Directors.
1.3.2 CENTRAL BOARD

State Bank of Pakistan is governed by central independent board consisting of Executive

Director (Governor) and Nonexecutive Directors for handling and supervision of bank affairs
that are regulated by committee. Nonexecutive members are selected by Federal Government.
1.3.3 EXECUTIVE MANAGEMENT

Executive Management of State Bank of Pakistan is led by Governor. Governor is Chief

Executive Officer of Bank and is only Executive Director of Board. The Executive Management
comprise of Executive Directors and Heads of Department.
1.3.4 DEPUTY GOVERNOR

Deputy Governor is appointed for a period of five years. Deputy Governor of State Bank of
Pakistan works in governance of Chief Executive Officer (Governor) and supervises Executive
Directors. As State Bank of Pakistan has three deputy governors governing following groups:
 Banking Group and FMRM
 IT Group, Development Finance and Islamic Banking
 Policy Group
1.3.5 CORPORATE SECRATARY

Corporate Secretary functions as intermediary between management and board and

communicates discussions of board meetings to management and committee for implementation
purpose. Corporate Secretary provides required information to central board and organizes
meetings for them.
1.3.6 BOARD COMMITTEES

Committees are formed for the purpose of supervision and regulation of specified areas.
Following committees are working in State Bank of Pakistan to assist Central Board:

4
  Enterprise Risk Management (ERMC)

This committee performs supervision regarding risk management in State Bank of Pakistan. This
committee calculates State Bank of Pakistan’s risk exposure and defines measure for its
mitigation. It also calculates risk exposure of subsidiaries of State Bank of Pakistan in absence of
their own committee. Any newly formed policy that is related to risk management is approved by
ERM Committee. As this committee works for Board’s interest but it coordinates with Risk
Management Committee of management.
 Committee on Investment (CI)

Committee functions to manage foreign exchange reserves and establish guidance regarding
investment. This committee also approves policies related to investment and reserve
management. It is governed by Shahid Mehmood.
 Publications Review Committee (PRC)

This committee helps central board in evaluation of State Bank of Pakistan’s reports, financial
stability and annual performance. Committee also approves reports on economic policies issued
by State Bank of Pakistan. It is governed by Ardeshir Khurshid.
 Financial Law Reform Committee (FLRC)

Legal framework is offered by this committee for the purpose to help board in this regard. FLRC
also reviews charges and recommendations in legal framework and offer propositions to
financial regulatory authority. It is governed by Tariq Hassan.
 Committee on Human Resource (CHR)

It is indulged in approval, interpretation and revision of HR policies. Recommendations by

committee are presented to Board. In addition to policies, this committee also approves
employment terms of upper level officers in Banks. It is governed by Zubair Somroo.
1.3.7 MANAGEMENT COMMITTEES

Management committees work to aid management in performance of their tasks in specialized

fields and communicate with other committees of board and management.

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1.3.8 CORPORATE MANAGEMENT TEAM (CMT)

Corporate management team works on operational issues and decision making. CMT includes
Managing Directors of State Bank of Pakistan’s Subsidiaries, Executive Director, Deputy
Director and Head of Departments to have discussions on delicate issues.
Other management committees working in State Bank of Pakistan are:
 Financial Stability Executive Committee
 Investment Committee on Management
 Derivative Approval and Review Team
 Budget Committee of Management
 Monetary Operations Committee
 Data Warehouse Committee
 Payment System Policy Committee
 Library Committee
 Refund Committee
 Sports Committee
 Banking Policy Committee
 Properties and Equipment Management Committee

6
 ORGANOGRAM

Corporate
Governor Management
Team(CMT)

Deputy Governor
Deputy Governor Deputy Governor (Islamic Banking,
(Policy) (Banking & FMRM) Developemnt Finance
& IT)

Research Advisor Executive Director Executive Director

(RG) (BPRG) (IBG)

Chief Economist Executive Director Executive Director

(MPG) (BSG) (DFG)

Executive Director Executive Director Chief Information

(FRMG) (FMRM) Officer

Figure 1 ORGANIZATIONAL STRUCTURE OF SBP

External
Relations

OCISO Internal Audit &

Compliance

7
 1.3.9 OFFICER GRADING IN STATE BANK OF PAKISTAN

In State Bank of Pakistan, Officers are graded from Grade 1 to Grade 8. Grade 8 is termed to
highest rank officer in hierarchy of State Bank of Pakistan. Managing Director is awarded with
highest grade i.e. OG-08 and lowest grade is given to Officers i.e. OG-01. The hierarchy
followed in relation to grades of officers is upgraded with the increase in working experience in
State Bank of Pakistan. Power of decision making also follows the pattern of this grading of
officers.

Managing Director
OG-08
Director
OG-07
Additional Director
OG-06
Senior Joint Director
OG-05
Joint Director
OG-04
Deputy Director
OG-03

Assistant Director
OG-02

Officer
OG-01

Figure 2 OFFICER GRADING IN SBP

8
1.4 VISION 2020 OF STATE BANK OF PAKISTAN

SBP Vision 2020 is a strategic plan that is implemented for a period of 2016-2020. The current
Vision and Mission of State Bank of Pakistan are in accordance with this strategic plan.
1.4.1 CORE VALUES

The core values of State Bank of Pakistan are revised and altered in VISION 2020 of State Bank
of Pakistan.

Old Values New Values

Trust Integrity

Openness Accountability

Courage Courage

Team Work Team Work

Commitment to
Excellence Excellence

Problem Solving
Result Orientation

9
INTEGRITY

 Not using power for personal advantage

 Performance of duties in non-ideological way
 Fulfillment of commitments
 Maintaining confidentiality
 Performance of duties without biasness
ACCOUNTABILITY

 Explanation of rationale of discussion to concerned people

 Taking responsibility of every action performed
 Allowing review of standards
 Providing transparency of standards
 Holding public disclosure
TEAM WORK

 Lowering personal interest with those of working team

 Sharing of workload
 Trusting other team members and giving them chance of deliverance
 Respecting views and ideas of other members of team
 Providing due credit to team members
COURAGE

 Challenging conventional ideas and views

 Acceptance of mistakes
 Taking stand without any pressure
 To take risk and manage properly
 Show willingness to take criticism properly
EXCELLENCE

 Performance of task effectively in first take

 Problem solving instead of ignoring the problems
 Always ready to improve

10
  Performance of duties with best use of abilities
RESULT ORIENTED

 No delay in decision making

 Depicting full response regarding conflict resolution
 Detection of stock holder’s expectation
 Setting goals for achievement of best results
 Detecting solutions and accepting challenges

1.5 BUSINESS VOLUME OF STATE BANK OF PAKISTAN

1.5.1 TOTAL REVENUE

Years 2014 2015 2016 2017 2018

Total Revenue 347,285,810 440,425,310 270,208,560 279,814,058 224,768,689
(Rs.)

Total Revenue

2018

2017

2016
Total Revenue

2015

2014

0 100000000 200000000 300000000 400000000 500000000

Figure 3 TOTAL REVENUE

11
1.5.2 TOTAL DEPOSITS

Years 2014 2015 2016 2017 2018

Deposits of
Banks and
Financial 530,746,356 413,234,045 391,760,469 669,337,539 813,948,915
institutions
(Rs.)
Other
Deposits and 165,772,707 147,197,850 161,552,998 164,665,074 200,428,200
Accounts
(Rs.)
Total Deposits 696,519,063 560,431,895 553,313,467 834,002,613 1,014,377,115
(Rs.)

Total Deposits

2018

2017

2016
Total Deposits

2015

2014

0 500,000,000 1,000,000,000 1,500,000,000

Figure 4 TOTAL DEPOSITS

12
1.5.3 TOTAL INVESTMENT

Years 2014 2015 2016 2017 2018

Local 3,154,126,304 2,415,541,268 2,147,418,594 2,694,286,076 3,824,128,547
Investment
(Rs.)

Long term - - - 2,134,590 2,345,584

investment in
associates
(Rs.)
Total 3,154,126,304 2,415,541,268 2,147,418,594 2,696,420,666 3,826,474,131
Investment
(Rs.)

Total Investment

2018

2017

2016
Total Investment

2015

2014

0 1,000,000,000
2,000,000,000
3,000,000,000
4,000,000,000
5,000,000,000

Figure 5 TOTAL INVESTMENT

13
1.5.4 TOTAL LOANS, ADVANCES AND BILL OF EXCHANGE

Years 2014 2015 2016 2017 2018

Total Loan, 308,552,175 349,077,905 350,571,180 362,703,790 453,500,448
Advances and
BOE (Rs.)

Total Loan, Advances and Bill of Exchange

2018

2017

2016 Total Loan, Advances and Bill of

Exchange

2015

2014

0 200,000,000 400,000,000 600,000,000

Figure 6 TOTAL LOAN, ADVANCES AND BILL OF EXCHANGE

14
1.6 FUNCTIONS OF STATE BANK OF PAKISTAN

Core Functions of State Bank

Of Pakistan

Development
Traditional Functions
Functions

Development of Primary Secondary

Banking System Functions Functions

Training Facilities
Issuance of
to Bankers Public Debt
notes
Management

Credit to Priority Regulation and

Sectors Supervision of Management of
Financial System Foreign Exchange

Islamization of
Banking System Conduct of Advisor to
Credit and Government
Monetary Policy

Relations with
Lendor of last IFIs
resort

Banker's Bank

Bank to
Government
Figure 7 FUNCTIONS OF SBP

15
1.6.1 TRADITIONAL FUNCTIONS

Traditional functions of State Bank of Pakistan includes list of functions that are performed by
Central Bank of every country that can be categorized into Primary and Secondary Functions.
1.6.1.1 PRIMARY FUNCTIONS

1. Issuance of notes
Section 24 of State Bank of Pakistan Act 1956 grants monopoly to State Bank of Pakistan
regarding issuance of notes. Two departments are involved in performance of notes issuance
functions:
 Issue Department
 Banking Department
30% of reserves are maintained by issue department for issuance of notes. These reserves are
kept by department in the form of silver bullion, gold coins, gold bullion and foreign exchanges.
This 30% nearly constitute 1.2 billion of reserves. The foreign exchanges include Euro, Yuan,
Norway Krone, Turkish Lira, Austria Shieling, Qatar Riyal, Czechoslovakia Crown, Bahrain
Dinar, Nepalese Rupee, Swiss Franc, Indian Rupee etc. The reserves left constitute commercial
papers, securities and coins. The currency that is in circulation in Pakistan largely contains notes
that are issued by State Bank of Pakistan.
Years Currency issued by Issue
Department (Million
Rupees)
1948 542.3
1949 1,739.5
1958 3,465.5
1968 5,880
1978 19,605.1
1988 91,205.8
1998 289,997.8
2003 522,891.1

Banking Inspection Department is involved in general banking business. The issued currency is
held by Banking Department.

16
 Years Currency held by Banking
Department (Million Rupees)

1948 21.5

1949 57.6

1958 92.2
1968 125.6
1978 370.4
1988 208.6
1998 153.4
2003 214.2

2. Supervision and Regulation of Financial System

Being Central Bank, State Bank of Pakistan performs key function of regulation and supervision
of financial frame work by ensuring their sound working. This competency to State Bank of
Pakistan is bestowed by
 Banking Company Ordinance 1962
 State Bank of Pakistan
 Micro Finance Institution Ordinance 1974
 Bank Nationalization Act 1974
These acts provide autonomic power to State Bank of Pakistan to inspect Banks, DFIS and Micro
Finance Banks and undergo cohesive supervision. It is the duty of State Bank of Pakistan to scan
performance of banks and other Financial Institutions and ensure whether they are complying
with laws, rules and regulations.

17
 • Commercial Banks
• Micro Finance Banks
• DFIs
Composition of • Non-banking Finance Companies
Financial Sector • Stock Exchange
• Specialzed Banks
• Development Banks
• Insurance Companies

Figure 8 COMPOSITION OF FINANCIAL SECTOR

State Bank of Pakistan carries two types of monitoring:

 On-site Monitoring
 Off-site Monitoring
On-site monitoring is carried out in premises of Institution. This function of State Bank of
Pakistan is performed by Banking Inspection Department. During inspection, the inspectors
check asset quality, assets and liabilities on balance sheets, management working, lending
practices, bank’s operations, estimate position of bank and check whether they follow rules and
laws prescribed.
In off-site monitoring, State Bank of Pakistan examines periodical information provided by
banks and other financial intuitions. State Bank of Pakistan undertakes this proactive supervision
by using CAMELS (Capital, Asset quality, Management Soundness, Earning, Liquidity and
Sensitivity) or RBS (Risk base Supervision).
3. Conduct of Credit and Monetary Policy
Section 17 of State Bank of Pakistan enables it to implement and sketch credit and monetary
policy to guarantee fiscal security in economy. Any loophole in these can drag financial systems
to collapse and cause disturbance in maintenance of their stability. State Bank of Pakistan
fulfills this responsibility by considering objectives of Federal Government regarding inflation
and growth. State Bank of Pakistan follows the recommendations issued by Monetary and Fiscal
Policy Coordination Board.
Credit policies are being formulated by State Bank of Pakistan for the purpose to flow funds to
priority sectors. State Bank of Pakistan performs this job through direct and in direct instruments.
State Bank of Pakistan can notify banks to limit credit for specified reasons including flow of

18
credit to priority sectors. State Bank of Pakistan enlarged width of financial market with
diversification of credit resources. Previously, State Bank of Pakistan had been preferring use of
direct instruments for credit and monetary policies but now State Bank of Pakistan is making
extensive use of direct instruments for monetary policy. State Bank of Pakistan took this step by
abolishing credit ceiling and extension of credit to private sectors by considering credit deposit
ratio.
State Bank of Pakistan also detached cap from lending rates and ultimately floor of rates was
also eradicated. Result was that financial institutions and banks were at ease of setting their
deposit rates in accordance with demand and supply in market.
4. Lender of Last Resort
State Bank of Pakistan act as helping had in appalling need of Scheduled banks when they ran
out of sources of funds. It plays the role of lender of last resort in such stress situations. State
Bank of Pakistan assists in these emergency situations under specified circumstances. The bank
applying for loan must fall in specified criteria in terms of liquidity. State Bank of Pakistan
grants credit to these banks on short term basis against collaterals.
Loans and rediscount facilities are granted to meet their needs of funds regarding economical
activities, agricultural activities, trade and other industrial activities. Different loan facilities are
provided by State Bank of Pakistan according to the type of requirement faced by bank. 3 Day
Repo Facility is offered by State Bank of Pakistan to fulfill liquidity requirements of Scheduled
banks against T-bills or speculation bonds.
5. Banker’s Bank
One of vital functions of State Bank of Pakistan includes that is serves the purpose of Banker’s
Bank. Banks are categorized into non-scheduled banks and scheduled banks. SBP offers certain
provision and pre requisites to scheduled Banks and save their data in offices. Scheduled Banks
show obligatory behavior in response. The facilities enjoyed by scheduled banks include
following important pre requisites:
 State Bank of Pakistan offers remarkable remittance facilities to scheduled banks at high
compromising rates. These services are offered by State Bank of Pakistan through
various platforms like National Bank of Pakistan which tend to play the role of agent.
Instruments like Demand Draft, Mail Transfer and Government Draft assist these

19
 services. This facility promotes the smooth running of funds among different centers of
Pakistan.
 State Bank of Pakistan also performs the function of clearing house in some cases for the
purpose to streamline payments. National Institute of Facilitation Technologies act as
clearing house for State Bank of Pakistan in five cities. It is a private institute that
manages to perform settlement functions of payment. Account settlement is carried out
by State Bank of Pakistan. Subsidiary of State Bank of Pakistan; Banking Service
Corporation also assist in clearing functions.
 One of main facility offered by State Bank of Pakistan also involves acceptance of
deposits of scheduled banks. It is compulsory for scheduled banks to maintain specified
percentage of deposits expecting no return. These deposits represent statutory cash
reserve for scheduled banks. This maintenance is constituted under State Bank of
Pakistan Act 1956. State Bank of Pakistan can agree on payment of certain amount of
some part of reserve. The extra reserves of banks are also sometimes kept in central
banks.
6. Bank to Government
State Bank of Pakistan offers banking services to Provincial and Federal Government just like
conventional banks provide to customers. Operations related to this task are carried out by State
Bank of Pakistan’s subsidiary, Banking Service Corporation. Banking Service Corporation
performs the concerned tasks in their field offices in various cities of Pakistan. National Bank
also assists in these operations. Banking Service Corporation performs these services under SBP-
BSC Ordinance 2001 and State Bank of Pakistan Act 1956. Banking services provided by State
Bank of Pakistan to Government are following:
 Banking Service Corporation performs the task of maintenance of Government accounts.
This task is performed by accounts department of Banking Service Corporation which is
also involved in reporting of these accounts. The details related to Government account
balances are sent to State Bank of Pakistan to submit forward.
 State Bank of Pakistan accepts deposits of Government and also collects cheques on their
behalf. The deposits are kept without charging interest.

20
  It transfers funds from one account of Government to other with the order from
Government. State Bank of Pakistan does not charge any fee or commission for banking
services it performs for Government. State Bank of Pakistan makes payment to several
departments on behalf of Provincial or Federal Government.
 State Bank of Pakistan is involved in buying and selling of Silver, Gold, Securities,
certain foreign exchanges and shares on behalf of Government.
 National Bank of Pakistan acts as an agent of State Bank of Pakistan and is involved in
settlement of receipts and payment of Government accounts.
 State Bank of Pakistan also provides advances to Government without keeping any
security. These advances are granted on specified terms and conditions of State Bank of
Pakistan.
1.6.1.2 SECONDARY FUNCTIONS

1. Public Debt Management

State Bank of Pakistan performs secondary function of dealing with public debt under Public
Debt Act 1944.Management of Government debts is carried under State Bank of Pakistan Act
1956. For effective management of public debt, State Bank of Pakistan formulated a department
named as Securities Department. This department was later on merged with another department
and is transformed into Exchange and Debt Management Department. State Bank of Pakistan
carries out this management function in following ways:
 State Bank of Pakistan use platforms of auctions or discount window to buy and sell
Federal or Provincial Government’s securities in Money Market.
 State Bank of Pakistan is responsible for interest payment to those who are holding open
debt instruments.
 It performs the duty of subscribing Government securities at issuance time.
State Bank of Pakistan also deals in prize bonds and receives fees on performing transactions
related to saving certificates issued by Government. It is also indulged in buying and selling of
Government bonds, saving schemes and T-Bills in auctions or secondary markets.
2. Management of Foreign Exchange
State Bank of Pakistan is responsible for evaluation of Pakistan’s currency in terms of certain
foreign currencies in order to monitor exchange system of Pakistan under Foreign Exchange
21
Regulation Act 1947. State Bank of Pakistan has authority to perform buying and selling of
specified foreign exchanges with International Monetary Fund on Government of Pakistan’s
behalf in accordance with “State Bank of Pakistan Act 1956”.
 It is the duty of bank to stabilize exchange rate of Pakistani rupee in foreign markets and
take steps to avoid its high fluctuation. These fluctuations can cause disturbances in
Exchange system and can negatively affect exports of country. Policies are formulated in
this regard by State Bank of Pakistan.
 State Bank also maintains and manages foreign exchange reserves. This function is
effectively performed by Investment Committee of State Bank of Pakistan. The reserves
maintained by this committee are consumed for development of exchange markets of
country. The committee undertakes investment of funds in order to attain high earnings
and maintain liquidity. These investments are made by considering volume of these
reserves and their expiry period. All these actions are undertaken in supervision of people
that are expert in forex field. Current balances related to reserves are regularly checked
and stated forward.
 State Bank of Pakistan takes effective steps every year to promote development of forex
markets. Steps taken by State Bank in this regard includes permitting Pakistani
companies to operate as money changers regarding commissions or fees received,
introducing “Special Convertible Rupee Account” for non-residents of Pakistan, giving
consent for import and export of foreign notes and coins in a legal and authorized
manner, formulation of exchange companies, allowing deposits of foreign currency by
residents of country etc.
3. Government Advisor
State Bank of Pakistan acts as helping hand to Government of Pakistan by advising it
economically and financially in a way to achieve its monetary goals and objectives efficiently.
 The banks functions to deliver advices to Government regarding credits (Industrial,
Cooperative, and Agricultural) and their control mechanisms.
 State Bank of Pakistan presents opinions on different types of loans, terms and conditions
of granting loans, security of loans, fixation of returns on categories of loans and maturity
of loans.

22
  State Bank of Pakistan proposes saving schemes to Government for effective
mobilization and enhancement of savings.
 State Bank of Pakistan also proposes exchange regulation strategies and solutions to
issues residing in economy.
 State Bank of Pakistan ensures its effective participation in formulation of economic
policy. For this purpose, the bank has joined several Government agencies. State Bank of
Pakistan has developed Monetary and Fiscal Policies Board (MFPB) in accordance with
State Bank of Pakistan Act 1956 for efficient coordination of monetary, exchange rate
and fiscal policies. The chairman of this board is Finance Minister of country. This board
functions determine limit of credit to be granted to Federal and Provincial Government
and to achieve macro level objectives of country.
 State Bank of Pakistan present reviews regarding economic situation of country in its
annual and quarterly report. This presentation constitute analysis of various policies of
federal government, opinions on improvement of fiscal policy and submission of
quarterly report to Parliament regarding credit control, growth of economy and price
determination.
4. Relationship with International Financial Institution
Pakistan owns membership of International Monetary Fund (IMF) and State Bank of Pakistan
represents Government of Pakistan in dealing with IMF and World Bank. The annual general
meetings of International Monetary Fund are attended by Finance Minister of country and
Governor of SBP. These meetings carry discussions related to working of International Monetary
Fund in Pakistan and determination of its objectives. The other international organizations with
which SBP deals in addition to IMF and World Bank are following:
 Bank for International Settlement
 Central Banks of other countries
1.6.2 DEVELOPMENT FUNCTIONS

The role of State Bank of Pakistan is out of the boundaries of conventional functions and is
widely indulged in development of economy pertaining growth and establishment of banking
system and financial system. In addition to performance of regulatory tasks State Bank of
Pakistan is engaged in development of various markets, promotion of efficient utilization of

23
Pakistan’s resources and achievement of macro level growth objectives. State Bank of Pakistan
is performing development tasks even before “State Bank Pakistan Act 1956” was launched.
State Bank of Pakistan strives to direct policies in accordance with objectives of economic
growth. Following non-conventional and development functions are discharged by State Bank of
Pakistan:
1. Development of Banking System
The prominent developmental function performed by State Bank of Pakistan is encouragement of
economic growth through reintegration of banking system. After independence, there was no
banking framework operating in newly born country Pakistan. For the purpose to over haul
sound banking system in country, a governing central authority was in demand. After the
initiation of central bank in Pakistan, the banking system industry started to take hold in newly
formed state. Afterwards the banking industry was strengthened and took deep roots in the
economy of Pakistan. Hence State Bank of Pakistan actively managed to amalgamate its
traditional functions with renowned exploratory. The evolution is brought in following three
sectors of banking industry remarkably:
 Commercial Banks
Commercial Banks constitute critical role in methodical running of banking structure. For the
cause to progress this principal part of banking industry, State Bank of Pakistan had took many
significant steps in past and is further functioning for its perpetuation. State Bank of Pakistan
started a program for establishment of National Bank of Pakistan with a wide boundary in 1949.
Then a policy was launched by State Bank of Pakistan in which foreign banks were prohibited to
continue operations in country’s banks. Instead, they need to initiate their own offices in large
trading cities for this purpose. This step taken by State Bank of Pakistan provided boost to
enterprises in Pakistan. Scheduled Banks started increasing in number remarkably in struggling
phase of country. Afterwards, private sector was injected in banking industry. There was huge
expansion of branches of foreign banks that gave boost to competition in banking sector. This
competition proved to be beneficial for banking industry of country.
 Islamic Banking
State Bank of Pakistan is taking massive measures to stimulate and boost Islamic Banking in
country for the cause to fulfill Shariah requirement. Islamic Banking Department of State Bank

24
of Pakistan is actively engaged in this task. State Bank of Pakistan is taking steps to aware public
at a high level through conferences and presentations. Working mode of Islamic Banking is
taught to people for their better understanding of this sector.
 Micro Finance
With the progress of banking sector in Pakistan, State Bank of Pakistan started giving attention
to micro finance banking in Pakistan in order to reduce poverty in country by assisting people in
their business at small level. To fulfill this objective, two micro finance companies were
launched by State Bank of Pakistan:
 First Micro Finance Bank (Public Sector)
 Khushali Bank (Private Sector)
State Bank of Pakistan facilitated micro finance banks by reducing minimum capital requirement
for them in contrast to other commercial banks. State Bank of Pakistan introduced various
policies for monitoring and proper working of this sector. Purpose was to protect the interest of
customers of these micro finance banks. Mobile banking was also promoted later on through the
platform of micro finance banks.
2. Training facilities to Bankers
Trained staff and trained bankers in banks are mandatory for proper working of banks. Hence
State Bank of Pakistan contributes in training of bankers through various seminars, meetings and
presentations. After independence when banking framework was established in new state, there
was lack of trained staff and bankers in banks. To provide necessary training to people working
in banks, State Bank of Pakistan introduced a program named as “Bank Officers Training
Scheme”. State Bank of Pakistan also rendered a scheme for graduated students having majors in
Finance, Accounting and Mathematics. Meetings were also held for training of clerks working in
banking sector in order to improve its services. Following divisions are working in State Bank of
Pakistan for this purpose:
 Training Division
State Bank of Pakistan is having a training division in its Human Resource Department that
works for advancement of training facilities provided to officers in State Bank of Pakistan and
commercial banks. Different types of trainings are sketched and then members are selected
according to criteria. Back in 1980s two units for training were formulated. One was in Lahore

25
and the other was in Karachi. They were made for the purpose to guide and train officers and
bankers according to their positions and grades. The training division of HR is bringing
efficiency in utilization of human resource in State Bank of Pakistan.
 NIBAF
NIBAF is delivering training facilities to officers on different topics like central banking,
conventional banking, economic system and financial system. NIBAF is working in Islamabad
and Karachi (Nazimabad) as independent subsidiary of SBP. International lectures are being
arranged by NIBAF for effective learning of members of training program.
 Institute of Bankers of Pakistan (IBP)
For the purpose to attain and hire eligible and talented staff for banking industry, IBP is
conducting exams. This institute is active since 1951. IBP enables to deliver efficient education
and competitive training facilities to bankers. IBP is providing awareness programs in Banking
Service Corporation. Various competitions are also designed by institute.
 SEANZA Course
These courses were initiated by State Bank of Pakistan back in 1960s and 1990s. Participants of
this course program were from different foreign countries including Japan, Thailand and
Australia. Five countries laid the foundation of this course. Pakistan is among them.
 Scholarships
For the purpose to hold qualified staff, State Bank of Pakistan awards scholarships for its officers
in top universities of the world in field of economics, statistics, mathematics and finance.
 Library Service
State Bank of Pakistan makes necessary information available for bankers and public in its
building in Karachi. Library constitutes books, journals, research papers, articles and newsletters
that are rich with productive information. The content is available in surplus languages and
depicts working from different countries on different subjects. Research department of State
Bank of Pakistan is making special efforts in its maintenance. The library is equipped with
contents of international organizations. Library is also holding reports of previous internship
students for guidance of interns on different subjects of economics, IT and finance. Books are
issued to members with submission of required form and information.

26
  Rural Finance Training
State Bank of Pakistan is delivering training to rural residents or farmers that can be clients of
service providers in those areas. These programs are held at Banking Service Corporation offices
that are near to concerned rural area. These programs provide awareness regarding better farming
techniques and other rural field work. Zarai Taraqiati Bank is actively sponsoring such programs
for promotion of agriculture sector.
3. Credit to priority sectors
In order to drag funds towards sectors that are in more need in comparison to others, State Bank
of Pakistan is paving various paths for it by initiating schemes. For effective running of each
sector residing in economy, the resources are allocated to priority sectors. For development and
encouragement of agricultural sector, credit schemes related to agriculture were introduced by
State Bank of Pakistan and specialized loans were launched for assistance of workers of this
sector. In 1986, “Supervised Agriculture Credit Scheme” was originated for this purpose. This
scheme also gave boost to non-farming activities. State Bank of Pakistan has expanded the
eligibility criteria for granting credit to farmers.
To promote exports in country at an elevated level, Exchange Finance Scheme was started by
State Bank of Pakistan in which it was willing to provide financing for assisting exporters
through platform of commercial banks. State Bank of Pakistan also encourages new export
items. In early stages, funds were provided for all categories of export items but later on the
financial assistance was provided into groups of two. Interest rate was lowered for exporters.
State Bank of Pakistan has also made effort for financing Industrial sector of Pakistan through
different programs and conferences. Financing for machinery was made available.
4. Islamization of Banking System
State Bank of Pakistan is trying hard to mold banking system in accordance with Islamic
Shariah. As during formulation of State Bank of Pakistan, Quaid-e-Azam made it quite clear to
construct a financial and banking system of Pakistan on the directions of Islam. In early stages a
department was built in State Bank of Pakistan to carry out research work on Islamic Ideology of
Banking. Then Islamic Banking division was established under Banking Policy Department for
discussion of modifications to be brought in financial system in accordance with Shariah. Later

27
in 2003 a separate department for Islamic Banking was constructed for the purpose to inject
colors of Islamic Ideology in economic and financial system.
 A council was made in 1970 to introduce economy that is without interest. The Islamic
banking concept was believed not to be valid for foreign branches of country’s banks.
State Bank of Pakistan launched the details of establishment of Islamic banks in private
sector and later on “Al-Meezan Investment Bank” appeared to be first Islamic bank in
commercial banking sector. Later on, subsidiaries of Islamic banks were largely
inaugurated.
 State Bank of Pakistan introduced a Shariah Board equipped with famous Islamic
scholars, accounting experts and banking specialists. Islamic banking policies and
modifications related to this sector were discussed in this board.
 State Bank of Pakistan directed Islamic Banks to maintain cash reserves with State Bank
of Pakistan. Various programs were initiated for assistance of Islamic banking sector.
“Islamic Export Refinance Scheme” is one of them.
 State Bank of Pakistan directed “Institute of Charter Accountants of Pakistan” to make
accounting standards for this sector that should strictly follow Shariah. Ijara Sukuks were
launched with several international banks including “Bank Negara” (central bank of
Malaysia).
1.7 SUBSIDIARIES OF STATE BANK OF PAKISTAN

State Bank of Pakistan possess following subsidiaries to carry out its functions productively:
1.7.1 BANKING SERVICE CORPORATION (BSC)

Banking Service Corporation came into existence as independent subsidiary of SBP in 2001
under “SBP Banking Service Corporation Ordinance 2001”. Banking Service Corporation
enforces the refinement of delivery of service conveyance appliance. BSC is bringing
improvement in their working framework and delivery of their services by bringing advancement
in their managing techniques and electronic working. BSC is taking massive steps to bring
nourishment to their internal control in laborsaving surroundings. For this purpose BSC initiated
an information technology division that worked for audit purposes. “Globus Reconciliation
System” encouraged communication that is done electronically. Automation was widely
implemented and with its implementation, the mechanism of working framework was altered.
28
Several policies were introduced for the purpose of hiring qualified employees and for bringing
improvement in human capital.
1.7.1.1 ORGANIZATIONAL STRUCTURE OF BSC

BOARD
The function of supervision and management of matters of BSC is performed by BODs. BODs
are responsible for all actions performed by BSC and possess autonomic power in this regard.
Board over view the working of BSC in compliance with rules and regulations. The board of
BSC constitutes
 Central Board Members
 Banking Service Corporation’s Managing Director
The topics that are discussed in board include policies related to management of human capital,
analysis of annual reports and budgetary discussions.
COMMITTEES
Committees are formed for the purpose to overview affairs related to audit and HR. Three
committees are working to guard interest of Banking Service Corporation.
 Committee on Audit
 Committee on Building Project
 Committee on HR
MANAGEMENT
Management of BSC functions to exercise its power in management of bank’s matters excluding
affairs that are under supervision of board. Management is governed by Managing Directors
aided by department’s head.

29
1.7.1.2 DEPARTMENTS OF BSC

Currency
Management
Department

Engineering
Department

Development
Finance Support
Department

Accounts
Department

General Services
Department

Human Resource
SBP BSC
Department

Strategic and
Corporate Affairs
Department

Internal Audit
Department

Foreign Exchange
Adjudication
Department

Internal Bank
Secuirity
Department

Foreign Exchange
Operations
Department

Figure 9 DEPARTMENTS OF BSC

30
1.7.1.3 FUNCTIONS OF BANKING SERVICE CORPORATION

1. Management of Currency
One of the vital tasks performed by BSC is currency management. This task is assigned to BSC
in accordance with “SBP Banking Service Corporation Ordinance 2001”. SBP has handed over
the job of replacement of notes, issuance of receipt and supply of notes in market to BSC. This
primary function of notes issuance is performed in centers that are located in four cities of
Pakistan (Lahore, Karachi, Peshawar and Quetta). National Bank of Pakistan is also involved in
this chore. BSC is fortifying the extraction and destruction of mutilated notes that are circulating
in economy and also ensures accessibility of notes. The BSC forbids stapling of notes as in this
way they are destructed physically. Through these effective measures Banking Service
Corporation has enhanced the quality of notes in circulation. Due to efforts made by BSC an
increased circulation of 13.4% has been noticed from 2006-2007. BSC has many awareness
campaigns for the purpose to circulate clean notes in economy. In these campaigns, printings
having features of newly issued notes were distributed among public and were posted on walls.
These activities were carried out by BSC officers in various cities. People working in BSC are
given trainings and lectures on these topics.
2. Offering banking facilities to Government
BSC is offering banking services to Central and Provincial Government in addition to other
institutions and public. BSC is providing this facility under “SBP Act 1956” with cooperation of
National Bank of Pakistan (NBP). NBP works as its representative. BSC also actively operates in
instruments in which public debt is implied such as T-Bills. “CBR Automation Program” was
also initiated in offices of BSC and branches of National Bank. Lectures were offered for the
launch of this program. These programs enhanced receipt and payment process.
3. Facilitation of payment and settlements
BSC facilitate payment mechanism in country. Banking Service Cooperation is involved in
efficient processing of inter bank settlements. National Institutional Facilitation Technology
(NIFT) assists BSC in these affairs. NIFT gathers instruments and handover bank’s details
related to settlement to BSC. BSC is transferring conventional settlement mechanisms to
advance electronic systems through RTGS. Banking Service Corporation is working for
encouragement of RTGS and is providing training to officers for learning of its mechanism. BSC

31
is having a qualified RTGS Group consisting trained members. PRISM is real-time system used
by Banking Service Corporation for massive value transaction to be settled. It reduces risk and
enables transactions to be settled with or without collaterals.
4. Implementation of Export Finance Scheme (EFS)
Banking Service Cooperation carries operation related to EFS. BSC is offering funds to banks
under Islamic Export Finance Scheme (IEFS). Commercial Banks forward the funds to exporters
for their assistance. Officers working in BSC offices are also responsible for recovery of funds
granted to exporter through Commercial Banks. They fulfill this task through process of
verification. The representatives of Chief Managers keep an eye on export schemes using
platform of banks that have gained funds through this scheme. People working in Commercial
Banks are directed to cooperate with the representative during investigation or checking. Any
discrepancy detected is pin pointed and assessed. This process of verification is performed by
“Central EFS Verification Unit” and later on a report is prepared which is forwarded to Micro
Finance Department. In year 2007, 37 such reports were submitted to concerned department.
5. Monitory Management for SBP
Function of Monitory Management is performed by BSC for SBP. Maintenance of liquidity and
reserve ratios is carried out by BSC. Banking Service Cooperation prepares a daily report on
Statutory Liquidity Reserve and Cash Reserve of different banks and forwards it to departments
that are monitoring them. BSC also assists in T-Bills and other instruments auctions.
6. Performance of operations related to Foreign Exchange
Exchange Policy Department formulates policies related to foreign exchange. This department
works under SBP. Polices made by this department are taken into implementation by department
of BSC; Foreign Exchange Operation Department (FEOD). This department functions as a
linkage between Exchange Policy Department and people dealing in exchanges. FOED is
conveying necessary information regarding problems arising due to exports. For the purpose to
gain earnings from export sector FOED is consistently encouraging export mechanism by taking
efficient steps in this field.

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1.7.1.4 OFFICES OF BANKING SERVICE CORPORATION

Cities No. of offices of Banking

Service Corporation
Karachi 2
Lahore 1
Sukkur 1
Hyderabad 1
Quetta 1
Peshawar 1
Islamabad 1
Muzaffarabad 1
D.I Khan 1
Gujranwala 1
Faisalabad 1
Rawalpindi 1
Multan 1
Bahawalpur 1
Sialkot 1

1.7.2 NATIONAL INSTITUTE OF BANKING AND FINANCE (NIBAF)

NIBAF was originated in 2003 as a private body that worked in collaboration with several banks.
The primary function of NIBAF was to educate about banking sector through efficient trainings
and events. For achievement of this goal, head office of NIBAF was inaugurated in Islamabad.
NIBAF started its activities by delivering lectures to staff of banks. After takeover of “Pakistan
Banking Council” by State Bank of Pakistan, NIBAF started providing basic trainings to staff of
State Bank. “Skill Upgradation Program” was launched for this purpose. After taking position of
subsidiary of State Bank, NIBAF extended the training sessions and enhanced the quality of
training. With the passage of time, NIBAF started offering its services to other institutions and
broadened its working pattern.
NIBAF is working to provide training facilities to State Bank and for improvement of human
capital residing in State Bank. It is basically a skill and knowledge providing institute that grants
advanced training to officers of State Bank of Pakistan and prepare them to compete in
challenging financial environment. NIBAF designs trainings to requirements of participants.

33
These trainings are projected at international level to impart valuable information related to
financial and banking sector. NIBAF is arranging workshops and seminars for BSC to develop
their policy techniques and other skills. Specialized courses are also offered for certain batches
of officers. “SAARCFINANCE” seminar on “Global Financial Crisis Implications” was
arranged by NIBAF. Certain foreign banks are also benefited from its trainings. More than
hundred countries have attained training programs from this subsidiary. These trainings awarded
NIBAF with title of “Best Regional Training Facility”. NIBAF is offering platform to officers to
conduct researches in field of their interests. Participants of NIBAF’s trainings are posted at
high level posts in SBP and other banks. NIBAF is offering its services to State Bank, Banking
Service Corporation, International organizations and other institutes with a proportion shown in
figure below:

Training programs delivered to various

institutes

State Bank
BSC
International organizations
Certification Programs
Other institutes

Figure 10 TRAINING PROGRAMS OFFERED BY NIBAF TO VARIOUS INSTITUTES

1.7.2.1 TRAININGS PERFORMED BY NIBAF

1. Post Induction Trainings for SBP

Under this training category, following three campaigns are offered by NIBAF to State Bank of
Pakistan:
 State Bank Officer Training Scheme (SBOTS)
 Training for OG-02 officers that are newly promoted
 Level Training Programs
34
These programs provide required information to officers and boost their skills for the concerned
post. Training duration of these campaigns vary according to the batch requirement. NIBAF
provides residential and other supporting facilities to participants during the training session.
2. Skill up Program for SBP
This program delivers knowledge about encouragement of skills that are required to compete in
challenging surroundings. Specified issues like Money Laundering are considered for discussion
in these programs. Trainings on “Monetary Management and Basel II Accord” were arranged
and many departments took part in it. This program assists in building a financial environment
that encourages growth of economy. 19 weeks program is arranged which is residential and
involves projects and workshops.
3. Training for BSC
Usually 47 weeks of training are decided for Banking Service Corporation in annual plan.
“Intermediate Level Function Specific Courses” are planned for BSC. As BSC primarily deals
with management of currency, so currency management courses are designed for this purpose.
More than thousand officers usually participate in training campaigns for BSC.
4. Trainings to International Organizations
International workshops and literacy programs are yearly conducted by NIBAF. These
distinguished courses help in delivery of information regarding finance, banking skills,
improvements in financial sector and various experiences. These campaigns are arranged under
“Pakistan Technical Assistance Program”. Workshops on commercial banking educate about
developmental role of banks. “Central Banking Training Program” delivers understanding
regarding banking framework in economy and role of central banks in stability of financial
system. “SAARCFINANCE is an international program launched by NIBAF.
5. Islamic Banking Certificate Courses
NIBAF offers inter level course on Islamic Banking that focuses on interest of stakeholders. This
course is a three week course which includes participants from Islamic Banking sector and
subsidiaries of other banks. Modifications related to Islamic Banking in accordance with Shariah
are widely discussed. Short period training of seven days is also referred for specific banks.
Presentations are given on topics like “Success story of Malaysia in Islamic Banking “to discuss
issues related to conventional banking and advantages arising from Islamic Banking.

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1.7.3 DEPOSIT PROTECTION CORPORATION (DPC)

To intensify public faith in financial and banking system of country, a firm working framework
is required. “Deposit Protection Schemes” act as keystone to serve this purpose. Deposit
Protection Corporation was formulated in accordance with “Deposit Protection Corporation Act
2016” to grant security to depositors of banking sector and reimburse in case of occurrence of
default by bank in fulfillment of obligations. Act grants share capital of one billion to DPC for
initial commencement. The board of DPC comprise of chairman (Deputy Governor of State
Bank) and directors. SBP monitors its working and can bring changes in its working or
regulations if required.
Before its incorporation, deposit in private banks was not secured. Due to this reason some banks
defaulted and massive issues were faced during withdrawal of deposits. Taking into
consideration these problems, SBP inaugurated DPC as subsidiary of State Bank of Pakistan.
DPC publishes commands regarding protection of deposits residing in bank through circulars.
DPC determines amount for guarantee regarding depositors for banks. “Deposit Protection
Corporation Act 2016” forces all banks to subscribe membership of this subsidiary and comply
with regulations prescribed by DPC. Shariah Board governs these security mechanisms.
State bank of Pakistan terms any bank as in solvent by taking into consideration its actions
towards regulations and its current financial position. In case of default, the deposits residing in
these banks are protected by State bank of Pakistan. Corporation will pay the obligations of
default institute for the secured amount but will not be responsible to grant interest on these
deposits.
1.7.4 PAKISTAN SECURITY PRINTING CORPORATION (PSPC)

PSPC was incorporated in 1949 to fulfil printing needs of Pakistan regarding securities. In early
stages, it functions to print ID cards, stamp papers etc. But later on its functions were altered and
it was handed over the job of printing of securities, bonds and notes for Government. It laid the
foundation of “Security Papers Ltd” which served the purpose of printing of security papers that
were previously imported.
PSPC was acquired by SBP in 2017 and performs the duty of notes issuance for State bank of
Pakistan. PSPC performs this function from printing of bonds and notes to its packing and
delivery. SBP governs its operations and proposes its working mechanisms and regulations. It

36
also assists BSC in processes of enhancement of quality of notes and removal of soiled notes
from economy.

1.8 MAIN INSTRUEMENTS OF STATE BANK OF PAKISTAN

1.8.1 3-DAY REPO RATE OF SBP

3-Day Repo Rate is offered by State Bank as borrowing pre requisite to those banks which are
listed scheduled. This rate works for three days and detect interest rate in market. This facility
functions through “Reverse Repo Transactions”. Excessive economic growth is halted by the
mechanism of “Monetary Tightening”. This mechanism is turned on through the increase in 3-
Day Repo Rate. This can also restrain inflation and bring depletion in money supply.
1.8.2 OPEN MARKET OPERATIONS

These operations are carried out by SBP to regulate liquidity in banking system for the purpose
to implement monetary policy. SBP performs this function through sale and purchase of
government securities. In this way State bank of Pakistan grants liquidity to banks using buying
mechanism and seizes money from the market through sale of securities. State Bank is
conducting this operation since 1995. In early stages, State Bank was performing this operation
in a direction that it was seizing liquidity from banking sector in case of overabundance but
wasn’t providing funds in period of crisis. But currently SBP is continuing this task in
bidirectional manner. A committee resides in State Bank of Pakistan to make decisions about the
direction and durations related to these operations.
1.8.3 TREASURY BILLS AUCTION

T-bills are instruments issued by SBP on short term basis and are sold in auction through the
activity of bidding. Their yield is highly affected by repo rates offered by State Bank of Pakistan.
T-bills with the tenor of six months are termed vital basis for money markets. The auctions are
conducted by taking financial and monetary requirements into consideration. Information related
to auction is notified through “Auction Calendar”.
1.8.4 STATUTORY CASH RESERVE REQUIREMENT (CRR)

CRR is the specified proportion of cash that is demanded by State Bank of Pakistan to maintain
by banks. This proportion constitutes specified amount of cash that is held by banks as deposit.

37
Currently, CRR required by SBP on average is 5% of demand and time obligatory deposits and
3% for daily minimum requirement. SBP has recently introduced “Master Circular for
maintenance of CRR”. Penalties are charged in case if required ratio of cash is not maintained.
1.8.5 STATUTORY LIQUIDITY REQUIREMENT (SLR)

It is proportion of current assets that is maintained by SBP from total of time liabilities and
demand liabilities. These current assets are kept in the form of cash or trusted securities. SLR
currently issued by State Bank for Islamic Banks is 14% and for the commercial banks is 19%.
These percentages are revised from time to time and are notified in “Master Circular for SLR”.
SLR regulates inflation pattern in economy and credit facility of concerned bank.

1.9 DEPARTMENTS OF STATE BANK OF PAKISTAN

1.9.1 BANKING POLICY GROUP

Banking Policy Group

Banking Policy and Exchange Policy

Regulation Department Department

Figure 11 BANKING POLICY GROUP

1.9.1.1 BANKING POLICY AND REGULATION DEPARTMENT (BPRD)

Banking Policy and Regulation Department is handed over the task of refinement of regulatory
framework and molding of banking system in accordance with latest international practices.
BPRD ensures the conveyance of its policies to concerned departments of State Bank. BPRD
basically works for the establishment of firm financial sector by taking directional regimes into
consideration. It coordinates with international agencies and commissions to discuss regulatory
practices and enforcement issues.

38
 Banking Regulation
Division

Banking Law Division

Licensing Division

Consolidated
Supervision and
Macro Risk Policy
Division
BPRD Divisons

Corporate
Governance Division

Basel Accord and

Capital Policy Division

Anti Money
Laundering Division

Privitization and
Restructuring
Division

Figure 12 BPRD DIVISIONS

BANKING REGULATION DIVISION

 This division arranges meeting of Stock Exchange with State Bank.
 It establishes prudential regulations regarding “consumer financing” and “banking
industry”.
 It publishes ratings of banks on website of State Bank.

39
  Requests are approved by this division regarding development of subsidiaries of various
banks.
 It receives applications from banks regarding alleviation of prudential regulations
enforced to them.
 It assesses instructions of State Bank regarding commercial papers.
 It is actively engaged in review of policies related to financial accounts, pricing patterns
and formulation of subsidiaries.
BANKING LAW DIVISION
 This division safeguards the interest of SBP in court of law by keeping tracks and
evidences.
 It develops new laws related to banking field.
 It is involved in revision of banking laws that are already in practice.
 It takes steps to eradicate illegal banking from financial system in order to protect public
interest.
 It issues instructions for stakeholders and provide legal assistance to them.
LICENSING DIVISION
 It is primarily functioning for issuance of licenses of Islamic banks, Micro Finance
Banks, DFIs and other overseas operational offices.
 It evaluates “Annual Branch Expansion Plan”.
 It is engaged in molding of conventional demand change system in accordance with
Islamic banking patterns.
 It works for extension of banking services to under developed areas.
 It gives approvals of alteration in “Article of Association” and “Memorandum of
Association” of Banks and DFIs.
CONSOLIDATED SUPERVISION DIVISION
 It analyses “External Audit Firms” working and position. Additionally, it retains a board
of auditors under “Banking Ordinance 1962”.
 It assesses monetary accomplishments of Banks and other development institutions.
 This division detects issues related to policies and provides guidelines for its resolution to
banks.
40
  It brings changes in laws by taking into account supervision of banking industry.
 It issues proposals for domestic and transboundary banks.
CORPORATE GOVERNANCE DIVISION
 It is involved in encouragement of administrative framework and setting up regulations
related to Corporate Governance working in a banking system.
 It communicates admin related issues to external and internal shareholders.
 It evaluates working of board of directors and management residing in banks and
Development Finance Banks taking into account the guidelines issued in “Fit and Proper
Test Criteria”.
 It is indulged in resolution of matters related to replacement of members of board under
“Banking Ordinance 1962”.
 It reviews financial statements and annual returns in order to check their relevance with
shareholdings of banks and DFIs.
BASEL ACCORD AND CAPITAL POLICY DIVISION
 It surveilles “Capital Adequacy Ratio” of banks, DFIs and MFBs.
 It detects risks related arising from operations of banks.
 It grants instructions to banking sector related to capital management and issues faced in
this regard.
 It gives approval of issuance of capital instrument to institutions operating in banking
sector.
 It submits reports on “Capital Adequacy of Banking Sector” after every four months.
ANTI-MONEY LAUNDERING DIVISION
 It encourages “Anti-Money Laundering” and “Combating Financing of terrorism”
through various strategies and plans.
 It ensures protection of banks from money laundering or terrorism financing
 It issues guidelines about the legal and regulatory aspects of AML and CTF strategies.
 It issues orders of accounts blockage in case of incompliance with any standard or
regulation.
 It is actively involved in evaluation of documents and procedures on recommendations of
FATF and submits proposals in this regard.
41
PRIVITIZATION AND RE-CONSTRUCTING DIVISION
 It assists Government in transfer of their shareholding to private sector.
 It gathers funding and sponsors for buildings plans related to public sector.
 It coordinates the issues of DFIs to Ministry of Finance.
 It solves issues and distortions arising in banking sector due to liquidation of any bank.
 It launches “Reconstruction Schemes” with assistance of several institutes and Federal
Government.
1.9.1.2 EXCHANGE POLICY DEPARTMENT (EPD)

EPD is a major department of State Bank of Pakistan regarding its functions and works under
“Foreign Exchange Regulation Act, 1947”. It is engaged in regulation of “Foreign Exchange
Regime” in Pakistan. It aligns foreign exchange processes in the country with Federal
Government’s concerned goals. In addition to it, EPD works for the maintenance and proper
functioning of forex markets. It issues instructions for dealers of foreign exchange regarding
authorization and forex operations. Alteration in any forex policy is communicated to forex
dealers and general public through circulars that are issued in corporation with Government and
Ministry.

Investment
Division

Policy Division

EPD Divisions
Home Remittance
Division

Research Division

Figure 13 EPD DIVISIONS

FUNCTIONS OF EPD
 It is primarily indulged in review of “Foreign Exchange Policies” in compliance to law
and order.
42
  EPD works for the maintenance and proper functioning of forex markets.
 It regulates imports and exports mechanisms in the country through various proposals.
 It is involved in initiation of Forex Institutes in the country for the purpose to carry
efficient forex operations.
 It scrutinizes Forex companies regarding their working, authorization, operational
activities and their role in stability of forex markets. It also approves licenses of Forex
companies.
 It exerts efforts for encouragement of home remittances in the country and issues
proposals for its working in legal ways.
 It detects discrepancies in Free Trade Agreements, World Trade Organizations and
policies that are related to trade.
 It monitors accounts that are maintained in Foreign Currencies in the country.
 It assists “Law Enforcement Agencies” for the eradication of illegal forex operations.
 It implements the enforcements actions after on-site examination of forex companies and
their records,
 It appreciates “Capital account Transactions” and works for its encouragement.

1.9.2 FINANCIAL MARKETS AND RESERVE MANAGEMENT GROUP (FMRMG)

FMRMG

Domestic Market and

International Markets and Monetary Management
Investment Department Department

Figure 14 FMRMG

1.9.2.1 INTERNATIONAL MARKETS AND INVESTMENT DEPARTMENT (IMID)

IMID functions to invest reserve capital of SBP in international markets in an effective manner.
IMID was incorporated in 2006 and combined the functions of reserve management and
43
investment under one department. State Bank issues list of currencies approved by central bank
of Pakistan and function of its management is carried out by IMID. By considering liquidity
requirements, placement of assets is planned and implemented. It evaluates structure of
management of reserves and notifies plans regarding it in “Sovereign Papers”. IMID keeps a
check on latest investment instruments in International markets and prepare their investment
plans accordingly. Investment policies in implementation are reviewed by IMID and suggestions
on its improvements are listed by department.

FX and Liquidity
Management Division

Performance,
IMID Divisions Relationship and Product
Review Division

Fixed Income Investment

Division

Figure 15 IMID DIVISIONS

FX AND LIQUIDITY MANAGEMENT DIVISION

Money Market
Investment Unit

FX and Liquidity International FX and

Management Division Swap Unit

Data Management Unit

Figure 16 FX AND LIQUIDITY MANAGEMENT DIVISION

44
MONEY MARKET INVESTMENT UNIT
 It prepares Investment plans in accordance with liquidity needs
 It is involved in organization of cash flow for currencies that are granted approvals.
 It assesses and evaluates risks related to solvency.
 Issues proposals and suggestion regarding money market.
INTERNATIONAL FX AND SWAP UNIT
 It directs transboundary cash flows.
 It monitors and assesses risk related to debt payments of Government.
 It provides financing for credit in NOSTRO accounts.
 It keeps a check on global trend followed by several currencies for the purpose to invest
accordingly.
DATA MANAGEMENT UNIT
 It monitors maturity profiles and submits income statement at the end of the day daily.
 It maintains records residing in the department and makes them available at the time of
need.
 It provides assistance in “front desk activities”.
PERFORMANCE, RELATIONSHIP AND PRODUCT REVIEW DIVISION

Product Review and

Research Unit
Performance, Relationship
and Product Review
Division
Performance
Measurement and
Relationship Unit

Figure 17 PERFORMANCE, RELATIONSHIP AND PRODUCT REVIEW DIVISION

PRODUCT REVIEW AND RESEARCH UNIT

 It submits weekly research and review reports on trends in financial markets and
economic positions.

45
  It gives approval of alteration in policies and asset placement.
 It evaluates instruments to check their compatibility with State Bank’s criteria of
investment.
PERFORMANCE MEASUREMENT UNIT
 It closely estimates portfolios and prepares monthly report on their analysis.
 It participates in short listing of managers regarding fund management perspective.
 It diligently satisfies the questions raised by external managers regarding investment in
international markets.
 It scans working and risks related to management of funds and present the findings in
front of board.
 It performs the function of analysis of external portfolios and follows a daily report on it.
 It arranges discussion sessions with external managers.
 It estimates returns on the basis of performance analyzed in “Tracking Error Reports”.
FIXED INCOME INVESTMENT UNIT

Fixed Income Dealing

Unit

Fixed Income Fixed Income Strategy

Investment Division Unit

Data Management
and Reporting Unit

Figure 18 FIXED INCOME INVESTMENT DIVISION

FIXED INCOME DEALING UNIT

 It carries out the dealing functions at ideal pricing.
 It functions to expand in market trend analysis and trading processes.
 It allocates portfolios in a way highest yield is gained.

46
FIXED INCOME STRATEGY UNIT
 It takes efforts to make calculated investment of portfolios in order to align with strategic
goals.
 It analyses yield curve patterns for the purpose to evaluate risk.
 The unit formulates fixed income investment portfolios in accordance with instructions
issued by board.
 It alters investment structure and strategies with changing market conditions.
DATA MANAGEMENT AND REPORTING UNIT
 It saves all the data regarding fixed income investment.
 It submits income statements on daily basis and keeps the records of all approvals.
 It is engaged in reporting of affairs related to fixed income portfolios and their
investment structure.
1.9.2.2 DOMESTIC MARKET AND MONETARY MANAGEMENT DEPARTMENT
(DMMD)

DMMD was incorporated in 2006 to mutate State Bank of Pakistan into a strong organization
that actively responds to changing market conditions. A circular was issued in 2011 that shifted
functions of “Financial Market Strategy and Conduct Department” to DMMD. The policy
regarding tasks of SLR and CRR were also shifted from “Banking Surveillance Department” to
DMMD. Hence, DMMD was handed over with all tasks related to derivative markets and
instruments.

47
 Market Policy,
Research and
Regulation Division

Market and
Monetray
Management
Division

FYC notes and

DMMD Divisions Treaury Compliance
Division

Market Reporting
and Survellience
Division

Planning, Audit and

Administration
Division

Figure 19 DMMD DIVISIONS

FUNCTIONS OF DMMD
 It is primarily engaged in analysis of structure and operations of Forex and Monetary
Markets.
 It deals with financial institutions regarding funding through various passage facilities.
 It supervises transactions performed by Treasury divisions and checks their compliance
with regulations.
 It evaluates Forex reserves and prepares reports related to its analysis.
 It is engaged in introducing policies and regulations related to Statutory Cash Reserve
and Liquidity Reserves.
 It holds records related to “Domestic Money Market” and debts.
 It regulates buying and selling of foreign currency in compliance to requirements of State
Bank of Pakistan.
 It satisfies questions raised by ministry of finance and stake holders.
 It assesses domestic market trends and works for its encouragement.

48
  It takes part in International Monetary Fund’s group discussions and meetings and fulfills
IMF concerned requirements.
 It monitors activities in Islamic and conventional banks regarding solvency of bank.
 It arranges auctions for specified instruments including Ijara Sukuk. Additionally it issues
auction calendars.
 It implements Domestic Forex Strategies and carries out activities in this regard.
 It efficiently manages cash flow gained from foreign exchange activities.
 It ensures repayment of external obligations.
 It evaluates policies related to derivative markets.
 It inspects certificates issued in domestic markets.

1.9.3 HUMAN RESOURCES GROUP

HR group

Human Resource Department

Figure 20 HR GROUP

1.9.3.1 HUMAN RESOURCE DEPARTMENT (HRD)

Human Resource Department of State Bank of Pakistan is making efforts to align SBP’s
objectives and its human capital. HRD is taking efficient steps for encouragement of building
firm linkages between officers of SBP and management. Problems faced by employees of bank
are actively addressed by Human Resource Department and are resolved with best proposals.
“Human Resource Action Plan 2011-2015” was launched by HRD in order to ameliorate present
HR strategies followed by SBP. This plan invested in human capital logically and improved their
performance through equitable incentives. These incentives are granted as a result of their
commitment towards SBP goals. “Employee empowerment” is widely emboldened by HRD. The
49
staff of SBP hired by HRD possesses all desired educational qualities required for performance
of State Bank’s tasks. HRD considers staff of bank as their vital resource and solve their issues
with value addition. It performs all functions of selection, assessment and training of officers in
order to prepare a well-qualified and talented force for State Bank. It also maintains a
professional environment in State Bank providing staff with better chances to show their skills
and commitments. It also assists officers in refinement of their expertise and helps them to grow
in conductive surroundings. For this purpose, it conducts various lectures, seminars and training
sessions.

Regulation and
Compliance Division

Reward Management
Divisions of HRD
Division

Talent Management
Division

Figure 21 DIVISIONS OF HRD

REGULATION AND COMPLIANCE DIVISION

 It deals with disciplinary principles of department and works for legal proceedings for
department.
 This division diligently aligns employees working with the objectives of management. It
focuses on employee relationship statuses within the organization and encourages
counseling for this purpose.
 It conducts audit of department on internal basis.
 It deals with all the affairs related to placement and transfer of staff of SBP.
 The division all performs administrative tasks of bank and performs several collaboration
tasks.
 Business plans are also initiated by this division.

50
REWARD MANAGEMENT DIVISION
 Benefits are granted by this division on performance basis.
 Employees’ records are maintained by this division in database unit.
 Computerization of employee services related data is carried out by this division.
TALENT MANAGEMENT DIVISION
 It performs the tasks of job analysis and setting up of goals in this regard.
 Hiring plans are conscientiously designed by Division.
 Jobs are internally assigned by this division.
 This division design “Internship Training Programs” and NIBAF trainings for newly
hired batches.
 Employee is directed by Talent Management Division.
 Performance of staff is eagerly evaluated by it.

1.9.4 DEVELOPMENT FINANCE GROUP (DFG)

DFG

Islamic Banking Agricultural Credit and Infra structure, Housing

Department Micro Finance and SME Finance
Department Department

Figure 22 DEVELOPMENT FINANCE GROUP

1.9.4.1 ISLAMIC BANKING DEPARTMENT (IBD)

Islamic Banking Department is working for formulation of firm banking system that works on
principles of Shariah and Islamic values. This idea of injecting Islamic Banking in conventional
banking system was started in 1977. “Interest free Banking System” is ultimate goal of this
department. Conventional laws like “Banking Company Ordinance 1962” and “Negotiable Act
Instrument Act 1881” were molded in accordance with Islamic values and interest free system
goal. It applies governance and regulatory rules on principles of Islamic Shariah. In 2001, efforts

51
for its promotion were elevated for the purpose to grant strength to regulatory and financial
framework. It performs this task by introducing Islamic banking system as a tool for
encouragement of this sector and through efficient deliverance of financial services via platform
of Islamic Banking.

Policy Division

Shariah Division

IBD Divisions

Market Analysis and

Research Division

Promotion and
Development Division

Figure 23 IBD DIVISIONS

FUNCTIONS OF IBD
 This department deals with problems and discrepancies related to regulatory or governing
framework of banking industry through the platform of Islamic Banking.
 It works with policy, enforcement and inspection departments to implement Islamic
Banking regulation in conventional banks.
 It formulates policies regarding Banking system in accordance with Islamic Shariah
regulations and laws.
 It provides assistance to “Banking Inspection Department” to conduct inspection of
Islamic Banks branches and check their compliance with implemented regulations.
 It offers a platform for research in Islamic Banking aspects, its advantages and drawbacks
of conventional banking. It provides facilities and assistance to foreign students working
on projects related to Islamic banking.

52
  It works in collaboration with policy and regulation department in order to issue license
to various branches of Islamic Banks and Islamic Micro Finance banks.
 It ensures implementation of Islamic prudential issued by standard board.
 It establishes connections throughout the world for the purpose to convey Islamic
Banking in International Organizations and for their promotion.
 It designs seminars and awareness programs for guidance of people about this concept.
This department coordinates with NIBAF for training purposes.
 It collaborates with “Security Exchange Commission of Pakistan” for encouragement of
Islamic Financing and their capital management.
 It evaluates records on Islamic Banking regulations and compliance.
 It resolves solvency issues regarding this sector and manages operations for its control.
 It supports audit operations of Islamic Banking Sector.
1.9.4.2 AGRICULTURE CREDIT AND MICRO FINANCE DEPARTMENT (ACMD)

The department setups an environment furnished with strong financial market frame work
through encouragement of micro financing, establishment of agriculture sector and branchless
banking mechanisms. The departments offer various literacy programs to guide different sectors
about financial markets and their infra structure. It works for development of agriculture sector
and works for its innovation and funding. It provides framers with recommended training for
management of their land and crops affairs in a better way. As agriculture is main sector of our
country and most of the income is derived from this sector, hence this sector needs to be
monitored and facilitated. This facilitation is provided by ACMD for elevation of economic
growth and assistance of major portion of labor concerned with this sector. Secondly it deals
with advancement of “Micro Financing” through projects. The merger of these two departments
was held in 2011for continuation of achievement of reconstruction objectives. “Branchless
Banking” is a mode of preferment of Micro financing that is being upgraded by ACMD.

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 Agricultural Credit
Enhancement
Division

Agricultural Finance
Policy and
Development Division

Micro Finance Policy

and Development
Division

Program
ACMD Divisions
Management Division

NFIs Implementation
Division

World Bank Project

Division

General Service and

Admin Division

Figure 24 ACMD DIVISIONS

FUNCTIONS OF ACMD
 ACMD establishes a framework for proper working of Micro finance and Agricultural
sectors through formulation of strengthening policies. It molds its strategies in a way to
recover financial failures occurring in markets.
 Targets are designed by department for providing funding to concerned sectors. These
targets are attained by implementation of “Financial Inclusion Strategies” in a directional
way.

54
  ACMD collaborates with Government projects for elevation of scopes of Micro financing
and Agriculture industry. Efficient funding programs are introduced and directed to
expected fund providing parties.
 ACMD analyses the financing needs of farming sectors plus non framing sectors in
backward areas and manages their needs accordingly.
 It arranges awareness and literacy programs to deliver its cause.
 It provides advanced technology tools and processes for encouragement of these sectors.
 It evaluates agriculture financing data in order to communicate it for policies
implementation.
 It maintains its membership in “Agriculture Credit Advisory Committee” and works for
its purpose.
 It keeps an eye on portfolios concerned with these sectors and confirms their efficient
placement.
 ACMD provides platform for research activities on agriculture sector development and
financing framework of these sectors.
 It works with ZTBL for various agricultural fund providing schemes and coordinates
their needs and requirements concerned with this sector.
 It assigns targets related to agricultural financing to commercial banks.
1.9.4.3 INFRA STRUCTURE, HOUSING AND SME FINANCE DEPARTMENT (IH &
SMEFD)

“SME Financing Department” was incorporated in 2008 and Housing and Infra structure was
inaugurated in 2006 and all these three sectors were combined in this department in 2011 to work
for the efficient delivery of services to housing and SME sector and reconstruction of
infrastructure framework. Small Medium Enterprises are bloodline of business sector and must
be funded by proper means. This department fulfills this purpose and also setups awareness
programs and schemes to broaden its scope. Their developmental role includes encouragement of
export sector and granting finance to manufacturing and agriculture industry. It also fortifies
industrial zone through acceptable funding facilities. As people are shifting their residence to
urban areas and are crowding the cities, houses are getting short in cities. To eliminate this

55
problem this department is providing funds and developing this sector. The department is also
involved in fostering of green banking.

SME Finance Traget and

Credit Enhancement
Division

Refinance Division

Green Banking Infra

structure Finance
Division
IH & SMEFD Divisions

SME Finance Policy and

Regulation Division

Housing Finance
Division

IH Finance Division

Figure 25 IH & SMEFD DIVISIONS

FUNCTIONS OF IH & SMEFD

 It works for the boosting of sectors of housing, SME and Infra structure through funding
and deliverance of awareness regarding these areas.
 It constructs a firm legislative framework in relation to these sectors.
 It encourages exports via credit programs and workshop sessions.
 It conducts research activities on concerned fields and reveals further means of
expansions.
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  It grants long term funding facilities to housing sectors.
 The evaluations conducted by department are issued on weekly basis.
 It analyses trends in growth regarding these sectors and pin points the sectors where
funding is majorly required.
 It proposes re financing awareness sessions.
 It performs the duty of monitoring of credit of banking institutions and also evaluates
growth pattern of infra structure.
 It undergoes “Customer Profiling Surveys” for Small Medium enterprises.
 It manages data related to Small Medium Enterprise funding and prepare analysis reports.
 It also grants study loans to students through schemes.
 It directs government investments in these financing programs.

1.9.5 FINANCIAL RESOURCE MANAGEMENT GROUP (FRMG)

FRMG

Risk Management Treasury Operations

Finance Department
Department Department

Figure 26 FRMG

1.9.5.1 FINANCE DEPARTMENT (FD)

Finance department deals with accounting activities of State Bank of Pakistan. It manages
accounts, prepares audit reports, monitors compliance with standards, handles deposits, present
financial statements of SBP and prepares budget reports. The department deals with tax
discrepancies faced by SBP and coordinate the proposals with concerned divisions of State Bank.
It consolidates reports of all subsidiaries of State bank into one report and performs collaborative
tasks with subsidiary BSC. BSC and finance department share some common functions like
management of currency and handling of accounts of Government. It manages financing

57
operations and portfolios placement in markets. It is also indulged in reporting of daily financing
activities in the form of reports.

Financial Control
Division

Issue Department
Division

Financial Policy and

System Division
Divisions of Finance
Department
Finanical Account
Division

Government
Account Division

Employees Welfare
Trust

Figure 27 DIVISIONS OF FINANCE DEPARTMENT

FUNCTIONS OF FINANCE DEPARTMENT

 It prepares financial statements of State Bank and checks their compliance with financial
standards.
 It issues reports with suggested amendments after external audit.
 It performs primary task of issuance of currency with its handling function.
 It supervises the balances in Nostro accounts and assures efficient placement of
portfolios.
 It presents budget to BODs and prepare reports regarding it.
 It handles accounts of Government (Provincial and Federal) and also of their representing
agencies.
58
  It also manages accounts of International Institutes and performs reporting function
related to it.
 It operates welfare trusts of employees through a separate division working in this regard.
 It ensures timely payment of taxes.
 It submits analysis on issue affairs in the form of weekly report.
1.9.5.2 RISK MANAGEMENT DEPARTMENT (RMD)

RMD was incorporated in 2006 as a result of reconstruction processes. Before that it was
operating as a cell under Risk Officer. The department monitors and works for mitigation of
operational and non-operational risks. RMD assesses market risk, investment risk and other
solvency risks. Credit risks are evaluated and their impact on SBP’s final position is detected.
Risk evaluation is processed in order to construct working mechanisms in its response and to
determine the uncertainties causing them. Vision 2020 of SBP lists RMD as an efficient
department in proposing effective risk management frame work and directing goals towards
mitigation of those risks. It implements “Enterprise Risk Management Strategies” in order to
secure State Bank’s reserves. It formulates risk management policies in accordance with market
changes. It also submits report in association with information technology risks of institutions. It
works for fulfillment of targets and objectives of monetary policy by management of systematic
risks.

Foreign Exchange Reserve

Management Division

RMD Divisions

Enterprise Risk
Management Division

Figure 28 RMD DIVISIONS

FUNCTIONS OF RMD
 It designs working frame works for management and assessment of risks along with
measurement of its exposure in concerned markets.

59
  It creates inventory in relation to risk management for the purpose to resolve problems
regarding them.
 It constructs risk management policies along with strategies for its efficient
implementation in accordance with suggested standards.
 It coordinates risk managing techniques to board and upper management.
 It secures reserves of State Bank and manages them in order to ensure their efficient
placement and outsourcing.
 RMD supervises operational, credit and liquidity risks and publishes precautionary guide
weekly in this regard.
 It maintains internally designed risk control mechanisms to pin point risks arising from
“In-house Reserves”.
 It functions as secretariat in risk management committees of State Bank of Pakistan.
 It monitors quality of risk management techniques of departments and division of SBP.
 It injects risk management mechanisms in administration processes.
1.9.5.3 TREASURY OPERATIONS DEPARTMENT (TOD)

TOD was originated in 2006 for the purpose to handle payments made to international institutes
and organizations on behalf of all departments and divisions of State Bank. It is also engaged in
management of reserves retained in foreign currency and also trade activities related to these
reserves. It supervises securities for State Bank and monitors managers of funds. Performance of
reserve managers is assessed by treasury department. Portfolios that are in form of foreign
reserves are allotted under this department. Management of cash reserves are undergone by TOD
along with reserve assessment operations. It is involved in working related to FX trade and
handles accounts regarding these trade activities. This department deals with “fixed income
securities” along with maintenance of memberships with investment committees. It also reviews
Nostro account balances and plans strategies for its management. It evaluates the working
concerned with SWIFT divisions.

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 Outsourced Reserve
and Payment Division

SWIFT Business
Division

Divisions of TOD
NOSTRO and
Technology Support
Division

In-house Reserve
Division

Figure 29 DIVISIONS OF TOD

FUNCTIONS OF TOD
 It is involved in management of MM, FX and fixed income securities and handles the
accounting related to it.
 TOD verifies the amounts and figures to be transferred to Finance Department for
preparation of financial statements.
 It handles SWIFT tasks and manages concerned operations.
 In is indulged in management of “FYC Deposits”.
 It processes trade activities and reports for their mechanisms and working patterns.
 It presents reports in front of BODs and concerned committees handling the treasury
affairs.
 It is additionally involved in management of treasury items.
 It manages trans-border payments and manages timely occurrence of remittances.

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1.9.6 CHIEF ECONOMIC ADVISOR GROUP

Chief Economic
Advisor Group

Econimic Policy Statistics and

Monetary Policy Research Library
Review Data
Department Department Deprtment Warehouse
Department

Figure 30 CHIEF ECONOMIC ADVISOR GROUP

1.9.6.1 MONETARY POLICY DEPARTMENT (MPD)

MPD is one of major departments of State Bank and provides a platform for supportive studies
regarding the implementation and formulation of monetary policy of the country. It is part of
cluster with Research Department and was originated in 2006. Statements regarding its
construction and implementation are released yearly. These statements high light the effect of
monetary policy on economy previous year and also propose suggestions for future
implementations. Variables are defined by Monetary Policy Department and are categorized for
further use in policy formulation. Department presents predictions in relation to projected risks.
Government obligations and credit facilities are assessed and monetary accounts are evaluated.
Factors affecting trade and inflation in country are detected and analytical reports are forwarded
by department. Economic forecasting is done by considering four sectors (fiscal, monetary, real
and external). It studies the influence of monetary policy on capital and monetary markets taking
various factors in consideration. Results are forwarded to BODs and upper managers. MPD also
arranges seminars and sessions for deliverance of knowledge and concepts regarding monetary
policy. It also supplies data to various departments for concerned studies. Journals are researches
on topic of monetary policy and issues related to it are depicted by MPD on websites.

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 Macro Economic
Framework and
Forcasting Division

Policy Support and

Communication
Division
MPD Divisions

Monetary and Credit

Analysis Division

Support Service Unit

Figure 31 MPD DIVISIONS

FUNCTIONS OF MPD
 The primary function of monetary policy is to determine variables affecting monetary
policy such as inflation and trade. Variables are defined by Monetary Policy Department
and are categorized for further use in policy formulation. Variables are presented through
issued papers to public in the form of reports.
 It supervises “Monetary Aggregates “and their impact on monetary policy.
 Developments (OMOs) are assessed for policy construction purposes.
 The department also detects problems related to monetary policy and publishes notes
regarding it.
 Trading patterns are assessed by MPD and exchange rate fluctuations are evaluated for
policy formation.
 MPD supervises solvency positions of foreign exchange markets.
 MPD also arranges seminars and sessions for deliverance of knowledge and concepts
regarding monetary policy.
 MPD communicates reports and records regarding monetary policy to “Monetary Policy
Committee”.

63
  The department assigns tasks and goals to “Monetary Operations Committee”.
 MPD satisfies questions made by ministry and departments of Government regarding
monetary policy.
1.9.6.2 RESEARCH DEPARTMENT (RD)

Research Department is designed to provide assistance to other departments of State Bank in

order to carry detailed research activities on economic related problems and their macro-
economic impact. The working of department is highly based on models that are designed by RD
for conducting surveys and implementation of strategic goals. The research is communicated to
concerned department or parties through journals and notes. It forwards proposals annually or
quarterly on country’s economy. This working is performed with assistance of international
institutes that carry proficiency in this regard.

Applied Economic
Division

Economic Modeling
Division
Research Department
Divisions

Econometric Division

International
Economic Relations
Division

Figure 32 RESEARCH DEPARTMENT DIVISIONS

FUNCTIONS OF RESEARCH DEPARTMENT

 Primary function of RD is to carry research activities on discrepancies regarding
economy of country and on customized topics proposed by other departments of SBP.
 The department designs surveys for the researches through online websites and
questionnaires. The surveys are held under special centers. Data is gathered through these
surveys which is later on filtered and used for research purposes.
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  RD formulates various models and uses them for prediction of factors influencing
monetary policy of Pakistan.
 It provides necessary information to top managers and BODs in the form of research
feedbacks.
 It also designs models to align relationships of Pakistan with concerned countries. These
models enhance understanding between countries.
 It conducts workshops, lectures and educational sessions at national and international
level. It also organizes annual conferences of State Bank for discussion of important
issues and topics.
1.9.6.3 ECONOMIC POLICY REVIEW DEPARTMENT (EPRD)

EPRD assesses the activities residing in economy and working framework followed majorly in
economy. It communicates its findings and studies through circulars and annual publishing. The
publishing includes one yearly report and three quarter reports discussing proposals in light of
four sectors (fiscal, monetary, real and external). EPRD reviews the economic policies forwarded
by MPD and then the reviews are shared back with MPD. EPRD grants permissions to different
Government institutes for assessing particular information requested.

Real Sector Division

Monetary Division

EPRD Divisions Fiscal Division

External Division

Thematic Analysis
Division

Figure 33 EPRD DIVISIONS

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FUNCTIONS OF EPRD
 It evaluates economical situations and policies for the purpose of improvement of sectors
of economy.
 It assesses problems residing in banking institutions and those related with funding and
price fluctuation.
 It evaluates the changes in exchanges rates and reserves kept in foreign currency.
 EPRD monitors the growth trend in Industrial and agricultural sectors along with
investment behavior majorly followed in economy.
 It manages fiscal accounts and obligations concerned with them.
 The department is responsible for issuance of yearly and quarterly reports on findings and
studies revealed by department.
1.9.6.4 STATISTICS AND DATA WAREHOUSE DEPARTMENT (SDWHD)

This department deals with collection and maintenance of records regarding economical and
financial systems, trade activities, policies, reserves, balances and obligations. The information is
communicated through State Bank’s website or circulars. Reports and notes are issued by
department after short periods. It helps Government in decision making process by supplying
required statistical data with processes. IT has brought advancement in data collection process
and shifted these processes on electronic means. Data is handled by software that is customized
to perform specified functions for department. The department ensures the data management
process compliance with standards.
FUNCTIONS OF SDWHD
 It fulfils automation needs of various division and departments of State Bank.
 The department undergoes data collection via specialized software.
 Business mechanisms of bank are processed through a central data ware house that is
managed by SDWHD. Suggestion regarding business mechanisms is forwarded by
department.
 It communicates with divisions and detects priority data for their facilitation.
 Coding programs are initiated by department.
 It conducts programs and workshops to encourage the utilization of State Bank’s data
warehouse.
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  It conducts verification processes regarding data ware house and grants access through
various online means.
 It also provides trainings for efficient understanding of working of data warehouses.
1.9.6.5 LIBRARY

State Bank’s library was incorporated after one year of launch of State Bank to meet the research
needs and to provide required information to officers of State Bank. Library is currently residing
in LRC building of State Bank at ground floor. The library was previously managed and
maintained by Research department of State Bank then it was allotted to “Corporate Services
Department”. Currently it is working as a separate division. As far as its reporting mechanism is
concerned, it reports through director of research group to Chief Economist.
Library’s administration comes under “Chief Librarian”. A committee is formed for discussing
affairs of library including approval of reading material, elimination of old material, construction
of policies and setting terms and conditions for issuance of material.
Material regarding subjects of accounting, finance, historical events, econometrics, monetary
policy, IMF etc. is placed in library. These books are available in different languages and
courses. Online portal of library is also made available in premises of library granting access to
officers of State Bank. Books placed in library are categorized into following sections:
 Government Publications Section.
 World Bank Issued Material.
 Rare books Section.
 References.
 State Bank’s Publications
 International Monetary Fund Publications
 Gazettes
 Budgets Records
 General Publications.
 E-book Databases
 Journals and researches
 Statistical Data Records
 CD ROM Records
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  Electronic Resources
Lending Service is available under certain rules and conditions. Books reservation facility is also
provided through online portal. If book issued is not reserved by other member then it can be
again issued to the person enjoying lending facility. Library memberships are provided to current
employees, retired officers and students of educational institutes.

1.9.7 OPERATIONS GROUP

Operations
Group

Information Information Payment

Technology Strategy Information Technology Systems
and Project Systems Department Deparment
Management Department
Department

Figure 34 OPERATIONS GROUP

1.9.7.1 INFORMATION TECHNOLOGY STRATEGY AND PROJECT MANAGEMENT

DEPARTMENT (ITSPMD)

This department is responsible for management of projects regarding Information Technology

and efficient implementation of strategies formulated in regard of IT. The department carries out
guidance sessions for the deliverance of IT knowledge and techniques. These sessions enabled
officers working in concerned departments to align the random information into set informative
practices. It actively assesses working of “Enterprise Information Technology Projects”.
FUNCTIONS OF ITSPMD
 It molds technology strategies in accordance with that of business prospects and visions.
 Projects that are designed for establishment and advancement of field of IT are managed
by this department. The department ensures effective working on these projects in
accordance with technology standards.
 It evaluates regulatory and working frame work of State Bank’s Information Technology
organizational structure and brings changes when required.

68
  It delivers latest updates and advancements in Information Technology field to divisions
of State Bank of Pakistan.
 It offers guidance to concerned divisions about advancement in field of IT and
technology project designing techniques.
1.9.7.2 INFORMATION SYSTEMS DEPARTMENT (ISD)

ISD was incorporated with the purpose to achieve business objectives by reducing costs incurred
during commencement of operational activities. The department ensures the proper deliverance
of information to the end user. It fulfils State Bank’s information deliverance requirements.
Stake holders of department include all department of State Bank, its subsidiaries and external
users. It meets IT requirements of users by efficiently providing them support, control and
procedures regarding it.
FUNCTIONS OF ISD
 The department works for the encouragement of “automation” in departments of State
Bank and its subsidiaries because it enhances the quality of deliverance.
 It provides assistance to systems carrying out business activities like oracle and RTGS.
 It grants development facilities for certain business software working in different
divisions of State Bank.
 ISD designs training sessions to deliver IT knowledge and techniques.
1.9.7.3 INFORMATION TECHNOLOGY DEPARTMENT (ITD)

ITD was formulated in order to deliver quality IT services to departments of State Bank, its
subsidiaries and businesses for efficient achievement of their concerned tasks. The customers of
this department additionally include other financial bodies, Government and general public. The
services are offered to general public through online portal. The department has various strategic
drivers including strategies, visions and challenges.
FUNCTIONS OF ITD
 ITD offers services of inter bank settlements, data storage services, foreign receipt and
payment and currency operational services.
 It bestows services of internet to all departments and subsidiaries along with online
conferencing service.

69
  It facilitates administration in performance of their tasks through discharge of advanced
software and programs.
 Like ISD it also provides “automation” of business and departmental activities.
 It assists in supply chain management by delivering best technology in this regard.
 This department provides service of “Credit Information Bureau”.
 IT Department provides a platform for dam collection funds currently.
 It offers Cyber Security throughout the State Bank.
 It enhances communication between departments of State Bank and with other
institutions.
1.9.7.4 PAYMENT SYSTEMS DEPARTMENT (PSD)

The main task that is performed by this department is processing of large amount payments by
mitigating system risk concerned to it. PSD introduces new means of payments in financial
industry, seeking advancement in technology. Conventional modes of payments are being shifted
to advanced electronic means by PSD. Branchless banking is one of them which is being
encouraged by payment system department through various awareness programs especially in
rural areas of Pakistan. Advanced forms of banking are being originated and promoted by
department including online banking and mobile banking. Digital means of payment are
extending their scope with the passage of time. Payment System Department of State Bank has
made this possible by enacting latest technology in this field. With the introduction of IBAN and
RTGS, the digital mode of banking is being widely accepted. ATM cards are now being used for
making payments, promoting the electronic payment channels. The department is indulged in
establishing policies for spreading these digital modes throughout the country and providing
convenience to employees of State Bank, general public and financial institutions. The
department is arranging sessions in banks for providing guidance in this regard.

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 Payment Systems
Over sight Division

Large Value Payment

and Settlement
Division

Policy and Regulation

Division

PSD Divisions
Retail Payments
Development
Divisions

Program
Management Division

Administrative and
Training Unit

Figure 35 PSD DIVISIONS

FUNCTIONS OF PSD

 It formulates strategies and policies for encouragement of advanced payment systems.

 It takes efficient steps to inject latest electronic modes of payment in “Retail Payment
Systems”.
 It takes part in public policy activity by overseeing modes of payment in country. In this
regard PSD detects risks and discrepancies residing in these systems and introduces ways
of dealing with it.
 It monitors RTGS working frame work in country.
 It provides protection regarding international systems introduced in the country.
 It resolves conflicts and issues in relation to payment systems.

71
  It collaborates with foreign institutions for commencement of promotional payment
programs.
1.9.7.5 STRATEGIC PLANNING DEPARTMENT (SPD)

It formulates strategic plans for efficient supervision and working of tasks assigned to SBP. It
performs managerial activities for strong operational activities and maintenance of focus towards
specified objective. It lists predictions and molds the organizational working accordingly. It
works for the progress of SBP and design their plans in accordance with interest to that.
“Business Continuity Plan” is major project followed by SBP to prepare the institute for any
disastrous situations. These plans are exercised through mocks, table talks and rehearsals. As
transactions are backed up in different locations to utilize the backups in case of data lost.

Srrategic Planning
Division

Business Planning
Division

SPD Divisions

Business Continuity
Plan Division

Support Services Unit

Figure 36 DIVISIONS OF SBP

FUNCTIONS OF SPD
 It prepares strategies and plans for State Bank in order to implement them for coming
five years.
 It collaborates with other departments and management for formulation of efficient
strategic plans.
 It supervises the working undergone by departments and divisions on suggested plans.

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  It directs the goals and objectives of SBP’s departments in accordance with visions and
plans offered by SPD.
 Currently, “Vision 2020” is offered by department with new and effective core values.
 It coordinates with committees for preparation of BCP for State Bank and its subsidiaries
and ensures effective implementation of these risk mitigation plans.
 It publishes circulars regarding strategies against disastrous situations.
1.9.8 LEGAL SERVICES DEPARTMENT

This department offers advisory services for State Bank and BSC and forecasts legal
implications as result of any activity or decision made by SBP proposing solutions to them. The
department monitors operational tasks and notifies State Bank in case of any appearance in
judicial courts. This department works in accordance with acts and ordinances issued to
safeguard interest of SBP in legal affairs and tasks. It provides aid to divisions to design
regulatory framework for proper law implication. It supervises that whether State Bank is
working in accordance to regulations and laws issued by court regarding any specified matter. It
monitors banking sector and business sector and checks their compliance with law and order and
also provides assistance in this regard.
1.9.9 MUSEUM AND ART GALLERY

State Bank has museum in office premises located in Karachi. The museum contains State Banks
currency heritage and other historical monuments. It has old currency preserved and statues of ex
Governors of SBP. It works in collaboration with art galleries in different countries and
exchanges their heritages with them. It provides platform for learning of State Bank’s history and
events occurred in past.

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1.9.10 GOVERNOR OFFICE GROUP

Governor Office Group

External Relations Office of the Corporate Internal Audit and

Department Secretary Compliance Department

Figure 37 GOVERNOR OFFICE GROUP

1.9.10.1 EXTERNAL RELATIONS DEPARTMENT (ERD)

ERD fulfills the communication objectives of Bank and addresses to general public via
conventional media, social media and website. This department is involved in direct reporting to
Governor of State Bank and communicates financial stability mechanisms. It is involved in
media management via electronic and print media. It performs the task of media supervision and
guide media about content to discuss through lectures, seminar and workshops. It also
contributes towards literacy programs to be featured. It issues communication plans and projects
for effective transparency. It provides online portal for collection of Dam funds.

Media and
Publication Division

Translation Division

ERD Divisions

Advertisement and
Public Division

Web Management
Division

Figure 38 ERD DIVISIONS

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FUNCTIONS OF ERD
 It is involved in arrangement of press release and initiation of awareness sessions.
 It publishes “In house SBP Magazine” every month.
 It handles the task of video and photographic coverage of events of SBP.
 It is indulged in allotment of banking sector’s advertisements in Pakistan.
 It supervises printing mechanisms of SBP and maintains efficient dispersal of
publications.
 It handles Urdu translation of flagship publishes material, State Bank’s website and
necessary information.
 It manages social media operational activities and monitors the posting.
 It is actively engaged in uploading of lectures, policies and publications.
 State Bank’s website is managed and designed by ERD.
 It issues communication plans and projects for effective transparency.
1.9.10.2 OFFICE OF THE CORPORATE SECRETARY (OCS)

OCS primary function is to supervise activities in State Bank and their compliance with
standards. It ensures the availability of required information to divisions of State Bank. It
arranges board meetings and policy launching seminars. It works for assistance of board and
updates the board about current processes, policies and working frame works. It works for the
management of tours of boards regarding meetings. It also aids MPCs in their working and
policy formulation processes. OCS coordinates with Government in affairs regarding Board,
Governor and MPCs. It reports to foreign institutions about Governor’s Office.
1.9.10.3 INTERNAL AUDIT AND COMPLIANCE DEPARTMENT (IACD)

IACD performs the task of supervision and governance of SBP’s affairs and their compliance
with regulations issued. It works on risk control mechanisms of SBP and arranges audit
operations of different groups of State Bank. IACD conducts operational audits of subsidiaries of
State Bank and check their managerial and financial framework. IACD works under “Audit
Charter” that was altered in 2012. The audit commenced by this department follows set of
standards issued by IIA.

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 Financial and
Operational Audit-
Regulations Division

Financial and
Operational Audit-
Operations and Reserve
Management Division
IACD Divisions

IT Audit Division

Quality Assurance and

Compliance Division

Figure 39 IACD DIVISIONS

FUNCTIONS OF IACD
 It performs risk evaluation activities in departments of State Bank.
 It conducts operational audits in various divisions of State Bank and checks their
compliance with suggested regulations.
 It issues “Audit Plan” for departments of bank every year, proposing a regulatory
framework.
 IACD monitors Information Technology Security Systems and their follow-up with
recommended plans.
 It assess audit reports and arranges “Quality Assessment” in departments and
subsidiaries.
 It attains approval from various audit committees on plans designed by IACD.
 It regulates “Internal Control Systems” and assesses their efficiency.
 IACD ensures efficient utilization of resources of State Banks and BSC.
 Request for alteration in audit Charter is placed by IAC in front of committees
 It issues “Audit Manuals” and communicates it to divisions of bank.

76
1.9.11 BANKING SUPERVISION GROUP (BSG)

BSG

Banking Conduct and Financial Stability OFF-site Supervision Banking Inspection

Consumer Protection Department and Enforcement Department
Department Department

Figure 40 BSG

1.9.11.1 BANKING CONDUCT AND CONSUMER PROTECTION DEPARTMENT (BC

& CPD)

The department was incorporated to grant security and protection to consumers by providing
genuine information to them regarding products and balances, by giving them access to resolve
issues with organization and by educating them with financial services and regulations. By
providing these services and assistance, State Bank ensures quality of service provided to its
customers. On a broader view, it accepts complaints and issues faced by general public and
propose effective solutions for their satisfaction. It supervises and assesses credit worthiness of
banks and financial institutes to provide security to consumers and depositors. The department is
handed over with the duty to launch strategic policies for enhancement of their customer service
quality.

Electronic Credit
Information Bureau
Division

BC & CPD Divisions Redressal Division

Policy and
Operations Division

Figure 41 BC & CPD DIVISIONS

77
FUNCTIONS OF BC & CPD
 It supervises the customer service departments of various commercial banks, micro
finance banks and development banks.
 The department launches “Consumer Awareness Sessions” for the purpose to guide them
about working and services offered by banks and other financial bodies.
 It oversees the resolution mechanisms followed by banks and financial bodies against
conflicts with consumers or depositors.
 It supervises and formulates strategies and policies on consumer protection for the
purpose to bring improvement in them.
 It commences working on court issued orders in regard of customer protection.
 The regulations or complaints received from “Wafaqi Mohtasib Institute” are processed
by this department.
 It supervises and assesses credit worthiness of banks and financial institutes to provide
security to consumers and depositors.
1.9.11.2 FINANCIAL STABILITY DEPARTMENT (FSD)

The main function of this department is firmness and soundness of financial sector and
institutions through supervision of “monetary and credit system” of Pakistan. It prepares reports
on regulatory frame works of financial bodies, their credit worthiness, compliance mechanisms
and risk management plans. FSD addresses issues faced by banking institutes and financial
bodies regarding technology or payment systems and proposes effective solutions to these
institutes. Its risk evaluation mechanisms ensure the soundness of institutions and formulation of
recovery plans.

78
 Financial Stability
Assesment Division

Macro prudential
Surveillance Division

Systematic Risk
FSD Divisions
Monitoring Division

Crisis Management
Division

FS Coordination
Secretariat

Figure 42 FSD DIVISIONS

FUNCTIONS OF FSD
 It ensures “financial stability” of economy of country by assessing monetary policies of
country through proposals and plans.
 It issues reviews on financial soundness of institutions in the form of reports.
 FSD actively assesses performance of financial sector and submits quality reports in this
regard.
 It notifies about exposures faced by financial sector.
 It carries out specific analysis tests on financial institutions and notifies their response
through quarterly reports.
 Supervision of financial combinations and mergers is also assessed by FSD.
 It also follows memberships of various committees working on financial growth and
stability objective.
 It submits reports on working frame works of financial bodies, their credit ratings,
compliance with standards and risk management mechanisms.

79
1.9.11.3 OFF-SITE SUPERVISION AND ENFORCEMENT DEPARTMENT (OSED)

As OSED is part of supervisory group. Its work is related to off-site monitoring of financial
institutions and on the basis of this monitoring it takes enforcement steps in case of any
discrepancy detected. On site inspectors reports to OSED about any lagging in systems of banks
during inspection and OSED implements enforcement actions against that bank after proper
analysis. Credit assessment and risk evaluation of banks is done by OSED. OSED use “CAELS”
for enforcement and supervisory tasks. It dissects reports submitted by different “credit rating
agencies” on concerned banks. In case of any discrepancy, noncompliance or illegal activity,
penalties are charged to banking institutions by OSED.

Surveillance and
Monitoring Division

Exchange Companies
OCEDDivisions Enforcement and
Supervsion Division

Supevision and
Enforcement Divisions
(I to IX)

Figure 43 OCED DIVISIONS

FUNCTIONS OF OSED

 It supervises financial institutions regulations and whether their working is in accordance

with recommended rules and laws.
 OSED is actively engaged in evaluation of risk management strategies of institute.
 It is involved in monitoring of banking institutions using COSARF mechanisms.
 OSED enforces penalties on banking institutes in response to inspection reports
submitted by BID inspectors.
 It presents its reviews and proposals to concerned stake holders.

80
 It works in collaboration with BID I and II for efficient utilization of resources for
inspection mechanisms.
 OSED monitors solvency positions of commercial and development banks along with
SLR and CRR.
 It ensures concerned policy implementation regarding alignment of deviations.

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 CHAPTER 2
2.1 BANKING INSPECTION DEPARTMENT

As I was placed in “Banking Inspection Department” (BID) of State Bank of Pakistan during my
internship, so chapter 2 is discussing the working frame work, functions, standards and
procedures followed by BID.
VISION OF BID

“To transform BID as the leading

on-site examiner of financial
institutions”

MISSION OF BID

“To strive for soundness and stability of

financial stability and to safe guard the
interest of stakeholder through proactive
inspection, compatible with best
international practices in keeping with
changing global environment in financial
sector”

The core function of State Bank is to ensure soundness and firm working of banking industry and
this function is performed by BID on behalf of SBP. BID implies finest monitoring and
inspection strategies through supervisory framework designed by “Banking Supervision Group”.
Banking Inspection Department is fundamental department of State Bank and functions to
perform supervisory practices in Banking Institutions in order to check their compliance with
82
law and standards and to detect any irregularity residing in banks and other financial bodies of
country. The chief objective of BID is to secure public interests and perpetuate their credence in
banking and financial sector. The department escorts “CAMELS (Capital, Asset, Management,
Earnings, Liquidity, Systems and control)” for inspection of concerned institutions. BID inherits
leading and superlative worldwide practices in field of on-site inspection. The inspectors
undergo exploration of risk evaluation mechanisms, their regulatory frame work and policy
implementation processes. The inspection is prioritized on the basis of credit rating and need of
supervision and inspection faced by a financial institution. Large banking institutes are inspected
frequently for securing depositor’s interest and for prolongation of financial stability.
2.1.2 GOALS OF BID

 To evaluate and estimate financial state of institutions and their legislative frameworks.
 To check precision of report handed over to State Bank by concerned institution.
 To inspect whether firm managerial substructure is implemented in institution.
 To detect whether bank or financial body follows laws or recommended regulations.
2.1.3 OBJECTIVES OF BID

 To perform flexible inspection of commercial banks, DFIs, Islamic Banks and MFBs.
 To ensure soundness and firm working of concerned financial institutions.
 To run inspection of companies who deals in exchanges and its health condition is
assessed.
 To safe guard interest of depositors in institutions operating in banking industry.
 To submit results of inspection to concerned departments in the form of suggestive
reports.
 To grant responsive supervisory services on recommended themes.
 To check soundness of information systems of financial institutions by special team of
inspectors.
 To implement best corporate governance practices in institutions under inspection.
 To carry out “Risk Focused Inspections” in which the department assesses strength of
controlling strategies opted by banking institutions.
 To structure required reports under banking sections and ordinances.

83
  To inspect risk evaluation mechanisms, their regulatory frame work and policy
implementation processes of under inspection banking institute or Exchange Company.
 To determine the authenticity and precision of reports submitted to State Bank by
financial institutions.
 To assess compliance of banks and DFIs with regulations and orders issued.

2.1.4 ALLOCATION OF BANKING AND FINANCIAL INSTITUTIONS

Banks and other financial institutions to be inspected by department are divided among two
groups BID I and BID II.
BID I BID II
Askari Bank Bank Al-Habib
Allied Bank Bank Alfalah
Citi Bank JS Bank
Faysal Bank Zarai Taraqiati Bank
Summit Bank MCB Bank
United Bank Samba Bank
Standard Chartered Bank Bank of Tokyo (Pak operations)
National Bank Bank of Punjab
Punjab Provincial Cooperative Bank Silk Bank
Sindh Bank Bank of Khyber
SME Bank Soneri Bank
Industrial Development Bank Habib Metropolitan Bank
NIB Bank Habib Bank Ltd
Industrial and Commercial Bank of Meezan Bank
China
Deutsche Bank Al-Barka Bank
Finca MFB MCB Islamic Bank
Khushali MFB Dubai Islamic Bank

84
 Apna MFB Burj Bank
Tameer MFB Bank Islami Pakistan
Waseela MFB HBFC Ltd
Advans MFB Pak Brunei Investment Company
U MFB Saudi Pak Industrial and
Agriculture Company
Pak MFB Pak Libya Holding Company
Pak Oman MFB Pak Oman Investment Company
NRSP MFB Pak China Investment Company
Pak Kuwait Investment Company

BID I was allotted with commercial banks, Exchange Companies and Micro Finance Banks
whereas remaining commercial banks, Islamic banks and Development Finance Banks were
placed in BID II.

85
 ORGANOGRAM OF BID I

Director of BID

Additional Additional
Director (Banks) Additional Director (IS Additional
Director Inspection) Director (Review,
(Exchange Planning &
Companies & Support)
Inspection MFBs)
Division 1 IS Inspection
Division 1
Basel Capital
Inspection Exchange Accord Division
Division 2 IS Inspection
companies Division 2
Division A
AML/CFT
Inspection Division
Division 3 IS Inspection
Division 3
Exchange
companies B IS Inspection
Inspection Division
Division 4

MFBs Division Budget, Business

Inspection Planning and
Division 5 Services Division

Inspection Quality
Division 6 Assurance
Division

Special
Investigation,
Research,
Developement
and Write-off
Division
Figure 44 ORGANOGRAM OF BID I

86
 ORGANOGRAM OF BID II

Director of BID

Additional Additional
Director (Banks) Director (IS Additional
Additional Inspection) Director (Review,
Director (Isllamic Planning &
Banks or DFIs) Support)
Inspection
Division 1 IS Inspection
Division 1

Basel Capital
Inspection Accord Division
Division 2 Islamic Banks IS Inspection
Division A Division 2

AML/CFT Division
Inspection
Division 3 IS Inspection
Division 3
Islamic Banks
Division B IS Inspection
Inspection Division
Division 4

DFIs Division Budget, Business

Inspection Planning and
Division 5 Services Division

Inspection Quality
Division 6 Assurance
Division

Special
Investigation,
Research,
Developement
and Write-off
Division
Figure 45 ORGANOGRAM OF BID II

87
2.1.5 DIVISIONS OF BID I

As I was placed in BID I of Banking Inspection Department, so divisions of BID I are discussed
below:
2.1.5.1 INSPECTION DIVISIONS (BANKS & MFBS)

Major resources of departments are utilized for functioning of this division. CAMELS is used as
rating mechanism for inspection of banks and MFBs allotted to BID I. Emergency inspections
are also held in case of sudden inspection orders of specified banks or MFBs. The division is
involved in submission of reports under “Banking Company Ordinance 1962”. The division
ensures the management of risk processes and examination of conductive environment. It
evaluates strategic policies and mechanisms in order to ascertain position of institution.
Managerial efficiency and their power of skills are assessed. Recommendations are welcomed by
division from external auditors for encouragement of internal control procedures. The division
supervises inspections made in previous sessions and efforts made by OSED regarding
supervision and enforcement.
FUNCTIONS OF DIVISION
 To inspect commercial banks and MFBs to assess overall financial health of institution.
 To examine internal control mechanisms, risk management procedures and governance
structure of banking institute.
 To undergo specialized inspections of financial institutions as requested by other
divisions or departments.
 To check authenticity of data provided to BID by banks.
 To submit feedback reports to other division of BID or departments of SBP regarding
concerned inspections.
 To submit required reports in accordance with “Banking Company Ordinance 1962”.
2.1.5.2 EXCHANGE COMPANIES DIVISIONS

The division operates under “Foreign Exchange Regulation Act 1947” and detects present
position of concerned exchange company. It is carried out in accordance with “F.E Circular No.
09 (2002)” and “F.E Circular No.06 (2004)”. Procedures, Key areas and Practices followed by
units of this division are same because all units of this division are involved in same task of

88
inspection of exchange companies. Meetings are commenced with managerial authorities of
Exchange Companies and recommendations and amendments are followed by division.
FUNCTIONS OF DIVISION
 The department is involved in pre inspection planning processes of ECs.
 It strictly examines compliance of ECs with issued timeline.
 The division deals with on-site inspection of coverage problems of Exchange Companies.
 It estimates internal control systems and corporate governance practices followed by ECs.
 It approves the accuracy of reports and other data forwarded by ECs.
 It assures quality of recommendation upon high lightening discrepancies detected.
 The division appraises operational tasks and activities performed by these companies.
 AML procedures adopted by ECs are strictly assessed.
 Review reports are prepared and submitted by Exchange Companied Division to
concerned authorities.
2.1.5.3 BASEL CAPITAL ACCORD DIVISION

This division of BID works for checking of compliance of banking companies with “Basel
Capital Accord” by evaluating data submitted by inspectors after inspection processes. The
officers placed in this division also issue guidelines to inspectors in this regard. Sections of
reports are divided and are analyzed by team of this division. The division issues
recommendations of strategic planning affairs.
FUNCTIONS OF DIVISION
 The division fortifies authenticity of detailed submissions in relation to capital particulars
of inspection reports to QAD.
 The division delivers guidance sessions to officers of BID I related to Basel standards and
procedures.
 Checklists recommended on topics of “Basel Capital Accord” are supervised and
followed by this division.
 Division satisfies Basel Accord queries raised by inspectors after inspection and policies
regarding problems are put forward to BPRD. These policy concerned issues are
forwarded to BPRD in the form of feedbacks.

89
  The members of this division accompany on-site inspectors at their visit to institutions to
closely examine the compliance with Basel standards.
 The division keeps itself updated and concerned about alterations and amendments
undergone by any committees of Basel and in response forwards an examination review
report recommending amended procedures and practices in working framework.
2.1.5.4 SPECIAL INVESTIGATION, RESEARCH, DEVELOPMENT AND WRITE-OFF
DIVISION

The division performs specialized divisions for the purpose to monitor promotional projects. The
division submits recommendations on loan write off reports of banking institutions.
FUNCTIONS OF DIVISION
 It monitors activities of institutions that play key role in developmental processes.
 It addresses complaints and issues regarding customized inspections.
 After submission of write-off drafts by inspectors, the department assesses it and
publishes reviews about it.
 It works in collaboration with internal audit panel in collection of data necessary for audit
conduction.
 MIS reports are submitted by department after analysis of write-off submissions.
2.1.5.5 IS INSPECTION DIVISION

This division deals with examination of information systems of banking institutions or

companies and forward the examination results to concerned divisions. It carries out examination
of information systems of settlement houses. It ensures efficient working of IS in organizations
supervised by State Bank. Governance IS framework is inspected on priority along with risk
managerial tasks.
FUNCTIONS OF DIVISION
 Adequacy of IS value delivery is examined by team of division.
 It carries out inspection of information technology residing in institute according to
COBIT standards.
 It detects risks to which technological mechanisms are exposed to.
 It issues plans and techniques for eradication of concerned risks.

90
  It inspects regulations and working patterns followed by IT team, management and IT
Governance in an institution.
 It delivers guidelines for protection of data residing in IT systems and marks threats
related to it.
 Delivery channels are being analyzed by department.
 It closely monitors outputs gained through IT sources.
2.1.5.6 BUDGET, BUSIENSS PLANNING AND SERVICE DIVISION

This division issues annual business plan and budgetary processes for BID. The division ensures
compliance of BID with issued instructions. The division handles admin processes for BID I. it
arranges international and local training sessions for members of division.
FUNCTIONS OF DIVISION
 It issues business plans for BID I periodically.
 It maintains records and necessary data of BID I in accordance with standards and
recommendations. It saves data of exchange companies and other financial institutions
under supervision of State Bank.
 Division forwards MIS report to managerial authorities of BID.
 It performs concerned admin tasks of department.
 It ensures safety and protection of inspection reports and delivers them to selective
inspectors when required.
 It performs the duty of arrangement of office stationary and equipment.
2.1.5.7 QUALITY ASSURANCE DIVISION

The major objective of this division is to examine quality of inspection reports and their
compliance with standards. Formulas implementation and accounting procedures are checked
during assurance process. Assignments are given by this division in addition to planning of
inspection sessions. It helps upper managerial teams in deployment of officers.
FUNCTIONS OF DIVISION
 The main function performed by this division is strict examination of inspection reports
and inspection of compliance and standard following mechanisms.
 It ensures the accuracy of figures and tables displayed in inspection reports.

91
  It prepares annual inspection plan under laws and acts recommended.
 It checks the compliance of inspection procedures with monitoring concerns.
 It grants assistance in ascertaining various rations in reports to be submitted finally.
 It supervises timely taking of action against any discrepancy in making of reports.
2.1.5.8 AML/CFT DIVISION

The division provides guidance to inspectors regarding AML\CFT supervision and carries out
specialized examination when recommended. During examination, KYC and AML processes are
investigated. Queries, issues, guidelines and recommendations related to AML and CFT are dealt
by this division. The division wholly provides assistance to inspectors in this field. Specified
manuals depicting Anti-Money laundering regulations are issued by division.
FUNCTIONS OF DIVISION
 It assesses AML theme based inspections to ensure efficient implementation of
regulations and standards.
 It amends AML\CFT inspection’s modes and procedures in accordance with feedback
and responses received.
 It spots discrepancies in AML\CFT reports and provides necessary guidelines for
improvement or eradication of mistakes in it.
 It improvises capacity building of inspectors selected for AML based Inspections.
 It communicates resolving procedures and deadlines for matters related to AML.
 It issues and prepares manuals on these topics within specified time period.
 It fulfils relevant duties assigned by upper management in field of AML\CFT.
 Complaints during thematic AML inspection are addressed by division.

2.1.6 TYPES OF ON-SITE INSPECTIONS

Following types of inspections are followed by officers of “Banking Inspection Department”:

 Thematic Inspection
 Full Scope Inspection
 Limited Scope Inspection
 IS (Information System) Inspection

92
2.1.7 ON-SITE INSPECTION FRAMEWORK

As core objective of supervisory group of State Bank is to safeguard customer’s interest, the
department takes active part in this regard and has adopted CAMELS as regulatory framework.
Inspections are carried out on the basis of this supervisory framework. The inspection is widely
carried out annually by considering these references:
 Bank’s current position and ongoing activities through which it performance is
ascertained in relation to solvency, capital requirement and asset management.
 Managerial authorities and operations carried out by it along with internal controlling
mechanisms.
 Compliance with issued orders and standards
Above references are considered and an inspection report is prepared mentioning discrepancies
detected and approaches for their removal. This report contains all the findings in accordance
with framework of CAMELS. After submission of this report to concerned divisions, scores are
allotted to banks and DFIs which are revealed to specified members.

2.1.8 INSPECTION PLANNING

The very first step of this planning is occupied by designing of “Annual Inspection Plan” by
concerned divisions of BID. The plan is designed by considering these factors:
 Availability of resources
 Previous ratings allotted
 Market conditions
 Size of assets
The plan is approved by senior directors and must constitute following elements:
 Full scope Inspection
 ECs Inspection
 Team selection for inspection
 Thematic Inspections
The teams that are formulated in plan are grouped and placed by considering experiences and
interests of officers. Institutional rating also plays a key role in team determination.

93
2.1.9 PRE-INSPECTION PLANNING

Before commencement of inspection, it’s working framework and regulations are sketched.
Strategic planning in relation to inspection is not organized at the premises of inspection but
throughout the process. Firstly, banks are assigned to concerned teams and afterwards teams
design the planning procedures. Inspectors deliver a requesting mail to bank to be inspected for
the submission of pre inspection information to BID so that they could closely built
understanding of bank’s frameworks. BID inspectors also request for preparation of information
availability on arrival of inspection team for the purpose to avoid time consuming activities. Pre
inspection examinations include assessment of strengths and weaknesses of banking institution.
Following areas are examined in pre inspection study of bank’s submissions:
 Latest inspection reports of BID on concerned banks
 Reports from OSED of concerned banking institutions are gained
 Latest financial reports of bank are analyzed carefully
 Feedback of last inspection team regarding concerned bank is availed
 Important financial ratios are evaluated
 Market position is analyzed
 Information is attained from various agencies
 External audit statuses are assessed
 Customers complaints are processed
After this, presentations are given by team to department officers. Exchange of information takes
place between members of inspection team.

2.1.10 ON SITE INSPECTION PROCESS

Periodic manuals guide inspectors for on-site inspection consisting of rating framework and
checklists. The processes followed by team are in accordance with strategic plans introduced in
pre inspection planning mechanisms. Risks processes are assed on priority along with managerial
strategic working. The inspectors undergo exploration regulatory frame work and policy
implementation processes. The inspection is prioritized on the basis of credit rating and need of
supervision and inspection faced by a financial institution. The results obtained contain detailed
monitoring analysis accompanying notes and recommendations by teams or inspectors.

94
Firstly, BID sends a directive governed by section 40 of “Banking Company Ordinance” to CEO
of banking institute comprising of names and details of inspectors. Secondly, a meeting is
organized with CEO to discuss inspection plans and modes of working. Then sittings are
arranged with heads of departments to be inspected. Practices and procedures of banking
operations are examined and performance of inspection team is monitored by inspection in-
charge. The in-charge also provides assistance to team in case they face any problem during
commencement of duty. Extensions in inspection are also approved by in-charge.

95
 CHAPTER 3
3.1 SOFTWARE USED BY STATE BANK OF PAKISTAN

RTGS is a system that is used by SBP for the purpose to process transactions of large amounts.
The transactions are settled in “Real-time” that is why it is considered to be the quickest way of
communicating transactions or payments online. As systematic risk is evolved through these
kinds of payments, hence RTGS eliminate this discrepancy and is followed by State Bank with
assistance of “World Bank”. The incorporation process of RTGS was completed in 2008. In
Pakistan, the real-time settlement system used is “Pakistan Real-time Inter-bank Settlement
Mechanism (PRISM)”. PRISM enables State Bank to manage risks while undergoing large
payments. It enables other banks to manage and keep an eye on their accounts which they are
holding in State Bank via this system. This mechanism works through a firm communicating
linkage between banks.
In addition to it, different types of systems and programs are applied by different departments
depending upon their working mechanisms and requirements. Oracle ERP is used by Finance
Department of State Bank for financial reporting, record saving and maintenance of ledgers.

3.2 SOURCES OF FUNDS

Years 2014 2015 2016 2017 2018

Deposits of
Banks and
Financial 530,746,356 413,234,045 391,760,469 669,337,539 813,948,915
institutions
(Rs.)
Other
Deposits and 165,772,707 147,197,850 161,552,998 164,665,074 200,428,200
Accounts
(Rs.)
Share Capital 100,000 100,000 100,000 100,000 100,000
(Rs.)
Reserves (Rs.) 175,944,238 175,944,238 175,944,238 100,664,452 69,435,670

96
 2018

2017 Resereves

Share Capital
2016
Other Deposits and Accounts

2015 Deposits of Banks and Financial

institutions

2014

0 500,000,000 1,000,000,000

Figure 46 SOURCES OF FUNDS

900,000,000

800,000,000

700,000,000
Deposits of Banks and
600,000,000 Financial institutions

500,000,000 Other Deposits and

Accounts
400,000,000 Share Capital
300,000,000
Resereves
200,000,000

100,000,000

0
2014 2015 2016 2017 2018

Figure 47 SOURCES OF FUNDS

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3.3 GENERATION OF FUNDS

Years 2014 2015 2016 2017 2018

Profit Earned
311,814,840 401,751,564 229,353,126 238,063,597 175,672,651
(Rs.)
Discount\Interest
earned\ Markup 306,034,451 304,368,351 252,831,070 260,870,627 321,606,845
(Rs.)

2018

2017

Discount\Interest earned\
2016 Markup
Profit Earned

2015

2014

0 200,000,000 400,000,000 600,000,000

Figure 48 GENERATION OF FUNDS

98
 450,000,000

400,000,000

350,000,000

300,000,000
Profit Earned
250,000,000
Discount\Interest earned\
200,000,000 Markup

150,000,000

100,000,000

50,000,000

0
2014 2015 2016 2017

Figure 49 GENERATION OF FUNDS

3.4 ALLOCATION OF FUNDS

Years 2014 2015 2016 2017 2018

Plant and
Equipment 21,453,644 20,839,622 60,095,958 111,142,903 109,583,229
(Rs.)
Intangible
8,927 4,203 3,833 107,554 309,238
Assets (Rs.)
Other Assets
1,683,168 4,167,883 4,348,162 8,657,388 7,052,906
(Rs.)
Investment
3,154,126,304 2,415,541,268 2,147,418,594 2,696,420,666 3,826,474,131
(Rs.)
Loans,
advances and
453,500,448 362,703,790 350,571,180 349,077,905 308,552,175
bills of
exchange

99
 2018

2017
Loan and advances
Investment
2016
Other Assets
Intangible Assets
2015 Plant and Equipment

2014

0 2,000,000,000 4,000,000,000 6,000,000,000

Figure 50 ALLOCATION OF FUNDS

3,500,000,000

3,000,000,000

2,500,000,000

Plant and Equipment

2,000,000,000
Intangible Assets
1,500,000,000 Other Assets
Investment
1,000,000,000

500,000,000

0
2014 2015 2016 2017

Figure 51 ALLOCATION OF FUNDS

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 CHAPTER 4
4.1 FINANCIAL STATEMENTS OF STATE BANK OF PAKISTAN

4.1.1 BALANCE SHEET (2014-2018)

Balance Sheet Items

('000) 2018 2017 2016 2015 2014

ASSETS
Cash and bank
balances held by 586,651 2,190,657
subsidiaries
Gold reserves held by
315,610,772 270,361,202 287,170,323 247,150,713 269,307,930
the Bank
Local currency - coins 989,497 861,860 488,198 365,231 417,880
Foreign currency
accounts and 1,333,820,287 1,782,539,188 1,977,084,370 1,443,289,097 963,680,793
investments
Earmarked foreign
12,277,462 10,319,532 5,147,596 1,274,786 7,453,502
currency balances
Special Drawing Rights
of the International 59,272,776 63,657,319 67,656,236 72,229,419 82,057,077
Monetary Fund
Reserve tranche with
the International
20,362 17,382 17,455 17,052 18,194
Monetary Fund under
quota arrangements
Securities purchased
under agreement to 1,562,309,789 1,533,373,313 1,533,574,159 662,579,848 0
resell
Current accounts of
Governments 33,104,114 36,797,935 955,474 3,048,507 802,315

Investments - local 3,824,128,547 2,694,286,076 2,147,418,594 2,415,541,268 3,154,126,304

Long term investment
2,345,584 2,134,590
in associates
Securities given as
collateral under
18,064,500
repurchase
agreements
Loans, advances and
453,500,448 362,703,790 350,571,180 349,077,905 308,552,175
bills of exchange
Taxation - net 505,899 398,414

101
 Assets held with the
6,652,678 5,758,914 6,012,137 5,450,937 5,866,879
Reserve Bank of India
Balances due from the
Governments of India 10,674,303 9,917,256 9,214,881 8,561,790 7,957,658
and Bangladesh
Property, plant and
109,583,229 111,142,903 60,095,958 20,839,622 21,453,644
equipment
Intangible assets 309,238 107,554 3,833 4,203 8,927
Deferred taxation 243,999 193,274
Other assets 7,052,906 8,657,388 4,348,162 4,167,883 1,683,168
Total assets 7,732,988,541 6,895,418,547 6,449,758,556 5,233,598,261 4,841,450,946
LIABILITIES
Bank notes in
4,635,146,711 4,167,135,807 3,554,922,057 2,707,258,012 2,309,127,023
circulation
Bills payable 644,452 630,547 598,142 643,121 642,102
Current accounts of
89,828,633 208,120,653 606,657,778 394,020,378 531,806,543
Governments
Payable to Islamic
Banking Institutions
25,137,230 44,952,938 189,919,121 17,194,695
against Bai Muajjal
transactions
Payable under
bilateral currency 370,409,071 155,550,410 158,507,631 164,867,890 105,248,797
swap agreement
Deposits of banks and
813,948,915 669,337,539 391,760,469 413,234,045 530,746,356
financial institutions
Other deposits and
200,428,200 164,665,074 161,552,998 147,197,850 145,772,707
accounts
Payable to the
International 912,585,032 787,381,266 778,739,505 554,172,982 384,994,742
Monetary Fund
Other liabilities 84,506,219 57,515,443 49,579,000 62,092,551 62,568,694
Deferred liability -
staff retirement 90,107,820 89,806,875 82,419,258 70,717,980 64,437,052
benefits
Endowment fund 102,793 98,421 94,207 89,391 81,711
Total liabilities 7,197,707,846 6,325,379,265 5,829,783,983 4,704,213,321 4,152,620,422
REPRESENTED BY
Share capital 100,000 100,000 100,000 100,000 100,000
Reserves 69,435,670 100,664,452 175,944,238 175,944,238 175,944,238
Unappropriated profit 14,324,252 44,154,941 3,712,051 0

102
 Unrealized
appreciation on gold
311,313,769 266,327,601 283,342,601 243,367,310 265,639,648
reserves held by the
Bank
Unrealized
appreciation on re-
74,622,824 93,302,881 91,386,276 83,994,988 221,168,234
measurement of
investments – local
Surplus on revaluation
of property, plant and 65,484,180 65,489,407 65,489,407 25,978,404 25,978,404
equipment
Total equity 535,280,695 570,039,282 619,974,573 529,384,940 688,830,524
Total Liability +Equity 7,732,988,541 6,895,418,547 6,449,758,556 5,233,598,261 4,841,450,946

Total Assets (2018)

Cash and bank balances held by
subsidiaries
Gold reserves held by the Bank

Local currency - coins

Foreign currency accounts and

investments
Earmarked foreign currency
balances
Special Drawing Rights of the
International Monetary Fund

Figure 52 TOTAL ASSETS 2018

103
 Total Liabilities (2018)
Bank notes in circulation

Bills payable

Current accounts of
Governments

Payable to Islamic Banking

Institutions against Bai Muajjal
transactions
Payable under bilateral currency
swap agreement

Figure 53 TOTAL LIABILITIES 2018

Total Equity (2018)

Share capital

Reserves

Unappropriated profit

Unrealized appreciation on gold

reserves held by the Bank

Figure 54 TOTAL EQUITY 2018

104
4.1.2 INCOME STATEMENT (2014-2018)

Income Statement Items 2018 2017 2016 2015 2014

Discount, interest/ mark-

up and/ or profit earned 321,606,845 260,870,627 252,831,070 304,368,351 306,034,451
Less: interest/ mark-up
expense (31,842,388) (21,368,844) (25,454,480) (21,000,191) (15,337,891)
Net Markup 289,764,457 239,501,783 227,376,590 283,368,160 290,696,560
Commission income 4,083,398 2,591,194 1,909,180 1,628,668 1,727,194
Exchange (loss) I gain -
net (72,280,199) 24,569,638 25,779,375 36,418,489 14,112,316
Dividend income 415,000 12,248,843 12,226,343 15,429,445 12,127,927
Share of profit from
associates 691,417
Other operating income
net 1,298,090 574,355 2,756,112 103,343,486 28,502,353
Other income – net 796,526 302,049 160,960 237,062 119,460
Less: Operating expenses
Cost of printing bank
notes and Prize Bonds 9,362,218 9,127,971 7,730,740 6,690,484 6,146,145
Agency commission 10,945,396 9,679,298 8,968,647 7,242,672 6,463,352
General administrative
and other expenses 27,703,661 22,941,749 24,250,586 23,871,368 22,977,834
Provision for/ (reversal
of provision against)
loans and advances -
net -22 -6,139 -756 925,782 -685
diminution in value of
investments - local - net -39,475 - -232 -1,489 1,489
other doubtful asset 76,1-45 16,842 -86,213 -55,071 -150,000
Other 0 -14,674 -7,338 - 32,835
Total Operating Expenses 36,648 -3,971 -94,539 869,222 -116,361
Profit before taxation 176,720,766 238,069,0 229,353,126 401,751,564 311,814,840
Taxation 1,048,115 5,414
Profit after taxation 175,672,651 238,063,597 229,353,126 401,751,564 311,814,840

105
 Trend of Profit after Taxation
450,000,000

400,000,000

350,000,000

300,000,000

250,000,000
Trend of Profit after
200,000,000 Taxation

150,000,000

100,000,000

50,000,000

0
2014 2015 2016 2017 2018

Figure 55 TREND OF PROFIT AFTER TAXATION

4.2 HORIZONTAL ANALYSIS

4.2.1 HORIZONTAL ANALYSIS OF BALANCE SHEET (2014-2018)

Balance Sheet Items

2018 2017 2016 2015 2014
ASSETS
Cash and bank balances held by
subsidiaries
Gold reserves held by the Bank 17.19% 0.39% 6.63% -8.23% 100%
Local currency - coins 136.79% 106.25% 16.83% -12.60% 100%
Foreign currency accounts and
investments 38.41% 84.97% 105.16% 49.77% 100%

Earmarked foreign currency balances 64.72% 38.45% -30.94% -82.90% 100%

Special Drawing Rights of the
-27.77% -22.42% -17.55% -11.98% 100%
International Monetary Fund
Reserve tranche with the
International Monetary Fund under 11.92% -4.46% -4.06% -6.28% 100%
quota arrangements
Securities purchased under
agreement to resell
Current accounts of Governments 4026.07% 4486.47% 19.09% 279.96% 100%

106
 Investments - local 21.24% -14.58% -31.92% -23.42% 100%
Long term investment in associates
Securities given as collateral under
-100.00% -100.00% -100.00% -100.00% 100%
repurchase agreements
Loans, advances and bills of
46.98% 17.55% 13.62% 13.13% 100%
exchange
Taxation – net 100%
Assets held with the Reserve Bank of
13.39% -1.84% 2.48% -7.09% 100%
India
Balances due from the Governments
34.14% 24.63% 15.80% 7.59% 100%
of India and Bangladesh
Property, plant and equipment 410.79% 418.06% 180.12% -2.86% 100%
Intangible assets 3364.08% 1104.82% -57.06% -52.92% 100%
Other assets 319.03% 414.35% 158.33% 147.62% 100%
Total assets 59.72% 42.42% 33.22% 8.10% 100%
LIABILITIES
Bank notes in circulation 100.73% 80.46% 53.95% 17.24% 100%
Bills payable 0.37% -1.80% -6.85% 0.16% 100%
Current accounts of Governments -83.11% -60.87% 14.07% -25.91% 100%
Payable to Islamic Banking
Institutions against Bai Muajjal 46.19% 161.43% 1004.52% 100%
transactions
Payable under bilateral currency
swap agreement 251.94% 47.79% 50.60% 56.65% 100%

Deposits of banks and financial

53.36% 26.11% -26.19% -22.14% 100%
institutions
Other deposits and accounts 37.49% 12.96% 10.83% 0.98% 100%
Payable to the International
137.04% 104.52% 102.27% 43.94% 100%
Monetary Fund
Other liabilities 35.06% -8.08% -20.76% -0.76% 100%
Deferred liability - staff retirement
39.84% 39.37% 27.91% 9.75% 100%
benefits
Endowment fund 25.80% 20.45% 15.29% 9.40% 100%
Total liabilities 73.33% 52.32% 40.39% 13.28% 100%
REPRESENTED BY 100%
Share capital 0% 0% 0% 0% 100%
Reserves -60.54% -42.79% 0% 0% 100%
Unappropriated profit

107
 Unrealized appreciation on gold
reserves held by the Bank 17.19% 0.26% 6.66% -8.38% 100%

Unrealized appreciation on re-

measurement of investments – local -66.26% -57.81% -58.68% -62.02% 100%
Surplus on revaluation of property,
152.07% 152.09% 152.09% 0.00% 100%
plant and equipment
Total equity -22.29% -17.25% -10.00% -23.15% 100%
Total Liability +Equity 59.72% 42.42% 33.22% 8.10% 100%

4.2.2 HORIZONTAL ANALYSIS OF INCOME STATEMENT (2014-2018)

Income Statement Items

2018 vs 2014 2017 vs 2014 2016 vs 2014 2015 vs 2014 2014 vs 2014

Discount, interest/ mark-

5% -15% -17% -1% 100%
up and/ or profit earned
Less: interest/ mark-up
108% 39% 66% 37% 100%
expense
Net Markup 0% -18% -22% -3% 100%
Commission income 136% 50% 11% -6% 100%
Exchange (loss) I gain - net -612% 74% 83% 158% 100%
Dividend income -97% 1% 1% 27% 100%
Other operating income –
-95% -98% -90% 263% 100%
net
Other income - net 567% 153% 35% 98% 100%
-35% -19% -22% 27% 100%
Less: Operating expenses
Cost of printing bank
52% 49% 26% 9% 100%
notes and Prize Bonds
Agency commission 69% 50% 39% 12% 100%
General administrative
21% 0% 6% 4% 100%
and other expenses
Loans and advances - net -97% 796% 10% -135251% 100%
Diminution in value of
-2751% -100% -116% -200% 100%
investments - local - net
Other doubtful asset -151% -111% -43% -63% 100%
Other -100% -145% -122% -100% 100%
Total Operating Expenses -131% -97% -19% -847% 100%

108
 Profit before taxation -43% -24% -26% 29% 100%
Taxation 100%
Profit after taxation -44% -24% -26% 29% 100%

4.2.3 INTERPRETATION OF HORIZONTAL ANALYSIS

In above analysis, 2014 contents of income statement and balance sheet are taken as base and
other years contents are compared to them accordingly. Performance is evaluated with
comparison to base year heads. The horizontal analysis of State Bank of Pakistan depicts that
total assets have increased in comparison to total assets of 2014 whereas liabilities of SBP in
year 2018 have increased remarkably with massive percentage. The equity is facing a decrease of
22% in 2018 in comparison to 2014. Total assets are exceeding total liabilities in 2018 showing
that bank has maintained increase in assets over years. Gold reserves are also enhancing with
high percentage whereas in comparison, local currency coins reserves secure a low proportion.
The analysis shows that State Bank has increased assets in 2017 and 2018 by long term investing
in associates. Share capital remained constant in all years under analysis. Reserves held by SBP
have reduced by 60% in 2018 and 42% in 2017 whereas before these years large constant
amount of reserves was maintained by State Bank.
The horizontal analysis of income statement revealed that interest earned had increased with a
minor percentage whereas interest expense has increased with huge percentage due to loans
gained from IMF and other institutions. The profit of State Bank has decreased with high
proportion in 2018 and has maintained the decreasing trend over in profit over last two years.

109
 Total Assets
120%

100%

80%

60%
Total Assets

40%

20%

0%
2014 2015 2016 2017 2018

Figure 56 TOTAL ASSETS

Total Liabilities
120%

100%

80%

60%
Total Liabilities

40%

20%

0%
2014 2015 2016 2017 2018

Figure 57 TOTAL LIABILITIES

110
 Total Equity
120%

100%

80%

60%

40% Total Equity

20%

0%
2014 2015 2016 2017 2018
-20%

-40%

Figure 58 TOTAL EQUITY

Net Mark up
120%

100%

80%

60%

40% Net Mark up

20%

0%
2014 2015 2016 2017 2018
-20%

-40%

Figure 59 NET MARKUP

111
 Total Profit after Tax
120%

100%

80%

60%

40%
Total Profit after Tax
20%

0%
2014 2015 2016 2017 2018
-20%

-40%

-60%

Figure 60 TOTAL PROFIT AFTER TAX

4.3 VERTICAL ANALYSIS

4.3.1 VERTICAL ANALYSIS OF BALANCE SHEET (2014-2018)

Balance Sheet Items 2018 2017 2016 2015 2014

ASSETS
Cash and bank balances held by subsidiaries 0.01% 0.03% 0.00% 0.00% 0.00%
Gold reserves held by the Bank 4.08% 3.92% 4.45% 4.72% 5.56%
Local currency – coins 0.01% 0.01% 0.01% 0.01% 0.01%
Foreign currency accounts and investments 17.25% 25.85% 30.65% 27.58% 19.91%
Earmarked foreign currency balances 0.16% 0.15% 0.08% 0.02% 0.15%
Special Drawing Rights of the International
0.77% 0.92% 1.05% 1.38% 1.70%
Monetary Fund
Reserve tranche with the International Monetary
0.00% 0.00% 0.00% 0.00% 0.00%
Fund under quota agreements
Securities purchased under agreement to resell 20.20% 22.24% 23.78% 12.66% 0.00%
Current accounts of Governments 0.43% 0.53% 0.02% 0.06% 0.02%
Investments – local 49.45% 39.07% 33.30% 46.16% 65.15%
Long term investment in associates 0.03% 0.03% 0.00% 0.00% 0.00%
Securities given as collateral under repurchase
0.00% 0.00% 0.00% 0.00% 0.37%
agreements

112
Loans, advances and bills of exchange 5.86% 5.26% 5.44% 6.67% 6.37%
Taxation – net 0.01% 0.01% 0.00% 0.00% 0.00%
Assets held with the Reserve Bank of India 0.09% 0.08% 0.09% 0.10% 0.12%
Balances due from the Governments of India and
0.14% 0.14% 0.14% 0.16% 0.16%
Bangladesh
Property, plant and equipment 1.42% 1.61% 0.93% 0.40% 0.44%
Intangible assets 0.00% 0.00% 0.00% 0.00% 0.00%
Deferred taxation 0.00% 0.00% 0.00% 0.00% 0.00%
Other assets 0.09% 0.13% 0.07% 0.08% 0.04%
Total assets 100.00% 100.00% 100.00% 100.00% 100.00%
LIABILITIES
Bank notes in circulation 59.94% 60.43% 55.12% 51.73% 47.70%
Bills payable 0.01% 0.01% 0.01% 0.01% 0.01%
Current accounts of Governments 1.16% 3.02% 9.41% 7.53% 10.98%
Payable to Islamic Banking Institutions against
0.00% 0.37% 0.70% 3.63% 0.36%
Bai Muajjal transactions
Payable under bilateral currency swap
4.79% 2.26% 2.46% 3.15% 2.17%
agreement
Deposits of banks and financial institutions 10.53% 9.71% 6.07% 7.90% 10.96%
Other deposits and accounts 2.59% 2.39% 2.51% 2.81% 3.01%
Payable to the International Monetary Fund 11.80% 11.42% 12.07% 10.59% 7.95%
Other liabilities 1.09% 0.83% 0.77% 1.19% 1.29%
Deferred liability - staff retirement benefits 1.17% 1.30% 1.28% 1.35% 1.33%
Endowment fund 0.00% 0.00% 0.00% 0.00% 0.00%
Total liabilities 93.08% 91.73% 90.39% 89.89% 85.77%
REPRESENTED BY
Share capital 0.00% 0.00% 0.00% 0.00% 0.00%
Reserves 0.90% 1.46% 2.73% 3.36% 3.63%
Unappropriated profit 0.19% 0.64% 0.06% 0.00% 0.00%
Unrealized appreciation on gold reserves held by
4.03% 3.86% 4.39% 4.65% 5.49%
the Bank
Unrealized appreciation on re-measurement of
0.97% 1.35% 1.42% 1.61% 4.57%
investments – local
Surplus on revaluation of property, plant and
0.85% 0.95% 1.02% 0.50% 0.54%
equipment
Total equity 6.92% 8.27% 9.61% 10.12% 14.23%
Total Liability +Equity 100.00% 100.00% 100.00% 100.00% 100.00%

113
4.3.2 VERTICAL ANALYSIS OF INCOME STATEMENT (2014-2018)

Income Statement Items

2018 2017 2016 2015 2014
Discount, interest/ mark-up and/ or
100.00% 100.00% 100.00% 100.00% 100.00%
profit earned
Less: interest/ mark-up expense -9.90% -8.19% -10.07% -6.90% -5.01%
Net Mark up 90.10% 91.81% 89.93% 93.10% 94.99%
Commission income 1.27% 0.99% 0.76% 0.54% 0.56%
Exchange (loss) I gain – net -22.48% 9.42% 10.20% 11.97% 4.61%
Dividend income 0.13% 4.70% 4.84% 5.07% 3.96%
Share of profit from associates 0.22% 0.00% 0.00% 0.00% 0.00%
Other operating income net 0.40% 0.22% 1.09% 33.95% 9.31%
Other income – net 0.25% 0.12% 0.06% 0.08% 0.04%
Less: Operating expenses
Cost of printing bank notes and Prize
Bonds 2.91% 3.50% 3.06% 2.20% 2.01%

Agency commission 3.40% 3.71% 3.55% 2.38% 2.11%

General administrative and other
8.61% 8.79% 9.59% 7.84% 7.51%
expenses
Provision for/ (reversal of provision
against)
loans and advances – net 0.00% 0.00% 0.00% 0.30% 0.00%
diminution in value of investments -
-0.01% 0.00% 0.00% 0.00% 0.00%
local – net
other doubtful asset 0.02% 0.01% -0.03% -0.02% -0.05%
Other 0.00% -0.01% 0.00% 0.00% 0.01%
Total Operating Expenses 14.94% 16.00% 16.16% 12.71% 11.59%
Profit before taxation 54.95% 91.26% 90.71% 132.00% 101.89%
Taxation 0.33% 0.00% 0.00% 0.00% 0.00%
Profit after taxation
54.62% 91.26% 90.71% 132.00% 101.89%

114
4.3.3 INTERPRETATION OF VERTICAL ANALYSIS

Vertical analysis places total assets as base to analyze performance of various heads of balance
sheets in relation to total assets. As liabilities to asset proportion is 93.08% and equity to asset
proportion is 6.92%, so assets are nearly wholly financed by liabilities and depict the fact that
liabilities constitute greater proportion than equity financing. The analysis also revealed that
assets are majorly utilized in local investments with a percentage of 49.45% in 2018 and this
utilization of assets is majorly consumed by local investments for last many years. Major
proportion of liabilities is constituted by bank notes in circulation every year and the proportion
of liabilities held by bank notes in circulation is showing an enhancing trend over years.
Vertical analysis of Income Statement of State Bank of Pakistan from FY 2014-18 uses
Discount/Interest Earned as a base. Interest expenses as a percentage constituted around 5%-9%
of Interest Earned during the period under review. The other contributing factor to Interest
Earned is Exchange Income whose value fluctuated from 4% to 9% till 2017. However,
Exchange loss which is a non-recurring item wiped out 22% of the Interest Income. The major
recurring driving factor of expenses is Operating Expenses which negatively accounted of the
interest income out of which General Administrative expenses and other expenses comprised of
8.6% of the base in FY2018. The proportion of provisions for loan losses was insignificant in
relation to the Interest Income. The profit before tax represented 55% of the Interest Income in
2018 and the same was 102% and 132% in 2014 and 2015 respectively owing to unprecedented
significant share of Other Income that included Exchange gains and other Operating Income.

115
 Total Liabilities
94%

92%

90%

88%
Total Liabilities

86%

84%

82%
2014 2015 2016 2017 2018

Figure 61 TOTAL LIABILITIES

Total Equity
16.00%

14.00%

12.00%

10.00%

8.00%
Total Equity
6.00%

4.00%

2.00%

0.00%
2014 2015 2016 2017 2018

Figure 62 TOTAL EQUITY

116
 Net Mark up
96.00%

95.00%

94.00%

93.00%

92.00%

91.00% Net Mark up

90.00%

89.00%

88.00%

87.00%
2014 2015 2016 2017 2018

Figure 63 NET MARKUP

Total Profit after Taxation

140.00%

120.00%

100.00%

80.00%

Total Profit after Taxation

60.00%

40.00%

20.00%

0.00%
2014 2015 2016 2017 2018

Figure 64 TOTAL PROFIT AFTER TAXATION

117
4.4 FINANCIAL RATIOS OF STATE BANK OF PAKISTAN

4.4.1 RETURN ON EQUITY

 ∗ 100
’

Years ROE

2014 45.26%
2015 66.0%
2016 39.9%
2017 40.0%
2018 31.7%

ROE
70%

60%

50%

40%

ROE
30%

20%

10%

0%
2014 2015 2016 2017 2018

Figure 65 ROE

118
 ROE

2018

2017

2016
ROE

2015

2014

0% 10% 20% 30% 40% 50% 60% 70%

Figure 66 ROE

INTERPRETATION
ROE is a profitability ratio that reflects the ability of a company to generate the profits from its
equity. Over the past five years, the return of equity for SBP has shown a declining trend,
decreasing from 45% in 2014 to 31.7% in 2018 with the exception of 66% in 2015. The
decreasing trend owes to the fluctuating interest income and slow growth in equity.
4.4.2 RETURN ON ASSETS

 ∗ 100

Years ROA

2014 6%
2015 7.9%
2016 3.9%
2017 3.5%
2018 2.4%

119
 ROA
9%
8%
7%
6%
5%
4% ROA
3%
2%
1%
0%
2014 2015 2016 2017 2018

Figure 67 ROA

ROA

2018

2017

2016
ROA

2015

2014

0% 1% 2% 3% 4% 5% 6% 7% 8% 9%

Figure 68 ROA

INTERPRETATION
ROA measures the capability of a company to generate profits from its assets i.e. how efficiently
the company utilizes its assets to produce profits. The ROA of State Bank has shown a similar
trend as that of ROE during the course of last five years.
120
4.4.3 DEBT TO EQUITY RATIO


’

Years Debt to Equity

2014 6.01
2015 8.9
2016 9.40
2017 11
2018 14.4

Debt to Equity
16
14
12
10
8
Debt to Equity
6
4
2
0
2014 2015 2016 2017 2018

Figure 69 DEBT TO EQUITY

121
 Debt to Equity

2018

2017

2016
Debt to Equity

2015

2014

0 2 4 6 8 10 12 14 16

Figure 70 DEBT TO EQUITY

INTERPRETATION
Debt to Equity represents the company’s total financing that originates from creditors and
investors. The debt to equity ratio of State bank has registered a rising trend over the last five
years as it has risen from 6.02 in 2014 to 14.40 in 2018. The sharp rise is due to the surge in
Deposits of banks and financial institutions.
4.4.4 EQUITY RATIO


Years Equity Ratio

2014 0.14
2015 0.10
2016 0.09
2017 0.08
2018 0.06

122
 Equity Ratio
0.16

0.14

0.12

0.1

0.08
Equity Ratio
0.06

0.04

0.02

0
2014 2015 2016 2017 2018

Figure 71 EQUITY RATIO

Equity Ratio

2018

2017

2016
Equity Ratio

2015

2014

0 0.02 0.04 0.06 0.08 0.1 0.12 0.14 0.16

Figure 72 EQUITY RATIO

INTERPRETATION
The Equity ratio measures the assets financed by shareholders’ equity. The ratio has decreased to
0.06 in 2018 from 0.14 in 2014. It is prominently due to the corresponding increase in total

123
liabilities as compared to equity. Thus, it is evident that SBP’s total financing is leveraged i.e.
inclined towards debt financing.
4.4.5 ASSET TURN OVER RATIO

 ∗ 100
Years Asset Turnover Ratio

2014 6%
2015 5.4%
2016 3.5%
2017 3.4%
2018 3.7%

Asset Turnover Ratio

7%

6%

5%

4%
Asset Turnover Ratio
3%

2%

1%

0%
2014 2015 2016 2017 2018

Figure 73 ASSET TURN OVER RATIO

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 Asset Turnover Ratio

2018

2017

2016
Asset Turnover Ratio

2015

2014

0% 1% 2% 3% 4% 5% 6% 7%

Figure 74 ASSET TURN OVER RATIO

INTERPRETATION
Asset turnover is used to assess a company’s capability to produce revenue from the assets i.e.
how efficiently a company utilizes its assets to generate sales. SBP’s asset turnover has
deteriorated in the last five years owing to the significant increase in total assets.
4.4.6 EQUITY TURN OVER RATIO

 ∗ 100

Years Equity Turnover Ratio

2014 42.4%
2015 53.5%
2016 36.6%
2017 42%
2018 54%

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 Equity Turnover Ratio
60.00%

50.00%

40.00%

30.00% Equity Turnover Ratio

20.00%

10.00%

0.00%
2014 2015 2016 2017 2018
Figure 75 EQUITY TURN OVER RATIO

Equity Turnover Ratio

2018

2017

Equity Turnover Ratio

2016

2015

2014

0.00% 10.00% 20.00% 30.00% 40.00% 50.00% 60.00%

Figure 76 EQUITY TURN OVER RATIO

INTERPRETATION
Equity Turnover for State Bank has shown fluctuation in the last five years. On average, the ratio
is on a gradual rising trend from 44% to 54% during 2014-2018.

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4.4.9 FIXED ASSET TURN OVER RATIO

Years Fixed Asset Turnover Ratio

2014 13.55
2015 13.40
2016 5.62
2017 2.80
2018 2.63

Fixed Asset Turnover Ratio

16

14

12

10

8
Fixed Asset Turnover Ratio
6

0
2014 2015 2016 2017 2018

Figure 77 FIXED ASSET TURN OVER RATIO

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 Fixed Asset Turnover Ratio

2018

2017

2016
Fixed Asset Turnover Ratio

2015

2014

0 5 10 15

Figure 78 FIXED ASSET TURN OVER RATIO

INTERPRETATION
The ratio assesses the efficiency of a company to generate revenue from the fixed assets. Fixed
Asset turnover of State Bank is decreasing with the passage of time as can be seen from the
graphs above. The decline can be attributed to the significant surge in fixed assets deployed by
the bank and the corresponding relative slow or fluctuating growth in net markup/interest
income.
4.4.10 NET INTEREST MARGIN

 ∗ 100 = ∗ 100

Years Net Interest Margin(NIM)

2014 8.40%
2015 8.23%
2016 6.04%
2017 5.55%
2018 5.56%

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 Net Interest Margin(NIM)
9.00%
8.00%
7.00%
6.00%
5.00%
4.00% Net Interest Margin(NIM)

3.00%
2.00%
1.00%
0.00%
2014 2015 2016 2017 2018

Figure 79 NET INTEREST MARGIN

Net Interest Margin(NIM)

2018

2017

2016
Net Interest Margin(NIM)

2015

2014

0.00% 2.00% 4.00% 6.00% 8.00% 10.00%

Figure 80 NET INTEREST MARGIN

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INTERPRETATION
The ratio is a measure of the difference between the interest earned on interest earning assets and
interest expense on interest bearing liabilities divided by the average interest earning assets. NIM
of State Bank is reflecting a declining trend as the margin reduced to 5.5% in 2018 from 8.4% in
2014. NIM remained constant in two years i.e. 2017 and 2018.
4.4.11 EQUITY MULTIPLIER

Years Equity Multiplier

2014 7.02
2015 9.8
2016 10.4
2017 12
2018 14.4

Equity Multiplier
16

14

12

10

8
Equity Multiplier
6

0
2014 2015 2016 2017 2018

Figure 81 EQUITY MULTIPLIER

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 Equity Multiplier

2018

2017

2016
Equity Multiplier

2015

2014

0 2 4 6 8 10 12 14 16

Figure 82 EQUITY MULTIPLIER

INTERPRETATION
The ratio reflects the amount of assets financed by the equity. The ratio has registered a rise over
the course of 5 years due to significant increase in total assets as compared to equity.
4.4.12 ADMIN EXPENSES TO PROFIT BEFORE TAX RATIO

 ∗ 100
Years Admin Expenses to Profit
before tax Ratio
2014 7.36
2015 5.94
2016 10.57
2017 9.63
2018 15.7

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 Admin Expenses to Profit before tax Ratio
18

16

14

12

10
Admin Expenses to Profit
8 before tax Ratio
6

0
2014 2015 2016 2017 2018

Figure 83 ADMIN EXPENSE TO PROFIT BEFORE TAX RATIO

Admin Expenses to Profit before tax Ratio

2018

2017

2016 Admin Expenses to Profit before

tax Ratio

2015

2014

0 5 10 15 20

Figure 84 ADMIN EXPENSE TO PROFIT BEFORE TAX RATIO

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INTERPRETATION
The ratio shows the proportion of operating expenses i.e. administrative expenses to total profit
before tax. Expense ratio compares the admin expenses to the profit before tax. The ratio has
shown an uptick from 2014 to 2018 that primarily shows the administrative expenses have
ramped up as a percentage of total profit.
4.4.13 INVESTMENT TO TOTAL ASSETS

 ∗ 100
Years Investment to total Assets

2014 65.14%
2015 46.15%
2016 33.29%
2017 39.07%
2018 49.45%

Investment to total Assets

70.00%

60.00%

50.00%

40.00%
Investment to total Assets
30.00%

20.00%

10.00%

0.00%
2014 2015 2016 2017 2018

Figure 85 INVESTMENT TO TOTAL ASSETS

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 Investment to total Assets

2018

2017

2016
Investment to total Assets

2015

2014

0.00% 10.00% 20.00% 30.00% 40.00% 50.00% 60.00% 70.00%

Figure 86 INVESTMENT TO TOTAL ASSETS

INTERPRETATION
The Investment to total Asset ratio reflects the total investment as a percentage of total assets.
Investment consists of Market Treasury Bills and Pakistan Investment Bonds. MTBs are short
term while PIBs are long-term securities. The proportion of investments in total assets initially
declined from 65% to 33% from 2014 to 2016 and then gradually increased to 49.45% in 2018.
4.4.14 ADVANCES TO DEPOSIT RATIO

 *100

Years
Advances to Deposits Ratio
2014 45.61%
2015 62.29%
2016 63.36%
2017 43.49%
2018 44.71%

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 Advances to Deposits Ratio
70.00%

60.00%

50.00%

40.00%

30.00% Advances to Deposits Ratio

20.00%

10.00%

0.00%
2014 2015 2016 2017 2018

Figure 87 ADVANCES TO DEPOSIT RATIO

Advances to Deposits Ratio

2018

2017

2016
Advances to Deposits Ratio

2015

2014

0.00% 10.00% 20.00% 30.00% 40.00% 50.00% 60.00% 70.00%

Figure 88 ADVANCES TO DEPOSIT RATIO

INTERPRETATION
ADR shows the amount of loans/advances as a percentage of total deposits. It reflects the amount
of funding from deposits that is placed in advances. The ratio in case of SBP initially increased
and then reverted to arrive at an average value of 45% in 2018.
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4.4.15 LOAN TO ASSET RATIO

 *100
Years Loan to Assets Ratio

2014 6.37%
2015 6.67%
2016 5.44%
2017 5.26%
2018 5.86%

Loan to Assets Ratio

8.00%

7.00%

6.00%

5.00%

4.00%
Loan to Assets Ratio
3.00%

2.00%

1.00%

0.00%
2014 2015 2016 2017 2018

Figure 89 LOAN TO ASSET RATIO

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 Loan to Assets Ratio

2018

2017

2016
Loan to Assets Ratio

2015

2014

0.00% 1.00% 2.00% 3.00% 4.00% 5.00% 6.00% 7.00% 8.00%

Figure 90 LOAN TO ASSET RATIO

INTERPRETATION
Loan to Assets ratio represents the proportion of total assets that the bank invests in the form
advances/loans and bills of exchange. In case of SBP, loan to assets ratio is generally lower as
the bank’s asset portfolio is mostly concentrated in the form of various reserves. The loan to
asset ratio of SBP remained somehow flat at 6% during the past five years.
4.4.16 MARKUP EXPENSE TO MARKUP INCOME


Years Markup Expense to Markup
Income
2014 5.01%
2015 7%
2016 10%
2017 8%
2018 10%

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 Markup Expense to Markup Income
12.00%

10.00%

8.00%

6.00% Markup Expense to Markup

Income
4.00%

2.00%

0.00%
2014 2015 2016 2017 2018

Figure 91 MARKUP EXPENSE TO MARKUP INCOME

Markup Expense to Markup Income

2018

2017

2016 Markup Expense to Markup

Income

2015

2014

0.00% 2.00% 4.00% 6.00% 8.00% 10.00% 12.00%

Figure 92 MARKUP EXPENSE TO MARKUP INCOME

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INTERPRETATION
The ratio trend depicts that interest expense is increasingly evident in year 2016 and 2018 with
the same enhanced ratio in both years. The interest expense is least in 2014 due to which this
ratio is proportioned to be lowest in 2014. Markup expense to markup interest is increased by 3%
from 2015 to 2016 and is decreased by 2% from 2016 to 2017. As a whole it can be deducted
that markup expenses of State Bank are increasing with passing years.

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 CHAPTER 5
5.1 SWOT ANALYSIS OF STATE BANK OF PAKISTAN

S STRENGTHS

W WEAKNESS

O OPPURTUNITIES

T THREATS

Figure 93 SWOT ANALYSIS

SWOT Analysis is used by managerial authorities in order to evaluate internal control and
strengths residing in an organization along with assessment of weak linkages within an
institution in order to formulate efficient strategic plans for institution. The purpose to overcome
threats to which institute is exposed to and to make efficient use of available opportunities.
5.1.1 STRENGTHS

 The greatest strength inhibited by State Bank of Pakistan is its ability to act as regulatory
authority in Pakistan. This provides massive power to SBP and grants it the title of
“Central Bank of Pakistan”.
 State Bank of Pakistan sketches and implements monetary policy and guarantee fiscal
security in economy. It is sole authority for monetary regulation. . It executes both
development and traditional functions and ensures monetary stability in Pakistan.
 State Bank of Pakistan regulates and monitors financial system and supervises banking
system by ensuring their sound working.
 State Bank provides conductive environment to their officers for efficient working and
utilization of their skills.
 State Bank of Pakistan holds monopoly regarding issuance of notes.
 State Bank has its own “Learning Resource Centre” for deliverance of quality trainings,
seminars and workshops.

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 State Bank of Pakistan serves the purpose of Banker’s Bank and provides pre requisites
to scheduled banks.
 State Bank provides mandatory quality training to their officers for upgrading of their
knowledge and unveiling of their skills. SBP is awarded with best professional
competency throughout the Pakistan and world.
 State Bank offers attractive salary packages to their officers and provides certain kind of
securities to them. Employees are granted with interest free loan facility and other firm
employee benefits.
 State Bank of Pakistan offers banking services to Provincial and Federal Government just
like conventional banks provide to customers.
 State Bank has strong online linkages due to its efficient IT services. This helps them to
draw their energy consuming tasks from computer systems with cent percent efficiency.
 State Bank of Pakistan has authority to perform buying and selling of specified foreign
exchanges with International Monetary Fund on Government of Pakistan’s behalf.
 State Bank practices strong governance practices and maintains firm internal control
within the organization.
 State Bank of Pakistan acts as helping hand to Government of Pakistan by advising it
economically and financially in a way to achieve its monetary goals and objectives
efficiently which strengthen its position.
 SBP network is widened by its subsidiaries that grant more strength to State Bank by
performance of effective practices.
 Pakistan owns membership of International Monetary Fund (IMF) and State Bank of
Pakistan represents Government of Pakistan in dealing with IMF and World Bank.
 State Bank implements strict regulations policies to its officers and staff with zero
compromise.
 State Bank of Pakistan act as helping had in appalling need of Scheduled banks when
they ran out of sources of funds. It plays the role of lender of last resort in such stress
situations.

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  In addition to performance of regulatory tasks State Bank of Pakistan is engaged in
development of various markets, promotion of efficient utilization of Pakistan’s resources
and achievement of macro level growth objectives.
5.1.2 WEAKNESS

 One of the greatest weaknesses related to SBP is that it is constantly under political
pressure of parties. As it nominates Government of Pakistan in major matters hence it is
highly influenced by political matters and affairs.
 Department allocation of officers’ batch is not just and fair most of the times. HRD
places the officers randomly in departments without considering their interest and skills.
Although the officers fill priority department placement forms but ones with highest
grades in NIBAF trainings are considered only. This led to non-performance of officers
in departments in which they are not interested in or are not skilled in.
 Decision implementation is highly delayed in SBP and large numbers of approvals are
required for even small matters.
 The work distribution among officers is not fair and it puts high work load on certain
officers while sparing others. It adversely affects the delegation of certain employees
towards works and their responsibilities.
 State Bank suffers with domination of senior officers and they highly influence bonus
rewards and increments according to their will.
 SBP also lacks in advancement of technology to some extent in comparison to
International Institutes. Paper work is still exhibited by some departments of SBP.
 SBP suffers high cost of delivering prize bonds because State Bank sends them via
private agencies and institutes due to insufficiency of firm security resources.
 State Bank pays least attention on promotion of their services and sectors.
5.1.3 OPPURTUNITIES

 State Bank can undergo expansion of network by widening their subsidiaries throughout
the country. SBP can establish BSC offices near small cities of Pakistan to enable their
access to services of BSC.
 State Bank can enhance their lateral hiring processes and can grant placement of
departments in accordance to interests of SBOTS hired officers.
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  SBP can increase efficiency of working tasks by fastening their decision making
processes and providing small grade officers with authority of approvals to some extent.
 SBP can undergo aggressive promotional activities in relation to services offered by their
departments and subsidiaries.
 State Bank can entirely get rid of paper work and can expose the institution to high
quality advanced technology by spending their majority funds in technology sector.
Electronic Banking can be completely opted by every department and subsidiary of State
Bank.
 State Bank can take effective steps in promotion of micro financing, contributing
massively towards financial stability of country.
 SBP can contribute more in promotion and understanding of Islamic Banking modes.
SBP can eradicate interest from banking industry via literacy workshops.
5.1.4 THREATS

 The biggest threat to SBP is change of Government or transfer of power between political
parties. SBP always faces political pressure on its working modes and lending practices.
The parties in power highly affect the borrowing mechanisms of SBP.
 The second biggest threat faced by State Bank is cyber theft. State Bank has recently
faced a malware injection problem. Although IT department handled this issue actively
but State Bank is always exposed to these kinds of threats.
 Frequent alteration or amendments in policies by Government led State Bank to face
security and strategies issues.
 SBP is dealing with enormous issues due to excessive lending by Government. Handling
of foreign cash reserves is highly affected by this problem.
 SBP is facing issues in responding to customer feedbacks. Customer Service is highly
needed for effective working of an organization. State Bank is facing lag in this
department.

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 CHAPTER 6
6.1 LEARNING AS AN INTERN

I joined State Bank of Pakistan on 17th June 2019 as an intern. I was selected by Human
Resource Department of SBP for Summer Internship Program 2019.
My working as an intern in SBP is summarized weekly as following:
First Week: Orientation Week
Second Week: Placement in Departments
Third Week: Assignment of projects
Fourth Week: Working on assigned project
Fifth Week: Preparation of report
Sixth Week: Submission of report and Presentation of project
FIRST WEEK
17th June 2019 (Day1)
On first day, I was directed to report in Learning Resource Centre (LRC) auditorium where I was
guided to mark my attendance in manual attendance sheet. After the completion of attendance
procedure, our internship coordinators Mr. Usman Pirani and Miss Zeila Tahir welcomed us and
congratulated us on our selection in SBP Summer Internship Program. They informed us about
the working framework of six weeks internship. They informed us that our first week is
orientation week and directed us to work in allocated departments in next four weeks. Last week
was announced as Presentation week.
18th June 2019 (Day2)
On second day, orientations were given by different groups and departments of SBP. These
presentations were given by Deputy Directors, Additional Directors or Joint Directors of
concerned departments.
STRATEGIC PLANNING DEPARTMENT
First orientation was presented by Deputy Director of Strategic Planning Department. He
initiated the session by explaining functionality and importance of department. He listed some
important aspects of department:
 Direction provider
 Crucial for good governance
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  Transparency and Accountability
He highlighted implementation status of SBP which constituted cumulative reporting. He then
put light on Vision 2020 of SBP and discussed the amendments in values of SBP. Values of
Trust, Openness, Courage, Problem solving and Team work were transformed into new values of
Integrity, Accountability, Courage, Team work and Result orientation. He then explained in
detail the Strategic Planning Pyramid. The last topic of discussion was Business Continuity Plan
(BCP). BCP functions to provide protection to SBP in case of any disaster.
FINANCIAL RESOURCE MANAGEMENT GROUP (FRMG)
On second day, second presentation was given by Deputy Director of Finance Department, Mr.
Faisal Sarwar. He started the presentation with a simple concept and presented the difference
between accounting and finance. He then listed the departments under FRM group:
 Finance Department (FD)
 Treasury Operation Department (TOD)
 Risk Management Department (RMD)
 Office of Chief Information Secretary Department (OCISO)
He then extended the orientation by informing us about the following divisions of department:
 Issue Department
 Financial Accounting Division
 Financial Policy and State System
 Financial Control Division
 Employee Welfare Trust
 Government Account
He further extended the orientation by listing IFRS focusing, financial reporting, currency
issuance, maintenance account and budgeting of all departments in goals of Finance Department.
Next he divided TOD in following divisions:
 In-house Reserve Division
 Nostro Account Division
 Outsource Division
 SWIFT Division

145
The next department under discussion was RMD. He termed foreign exchange reserve
management and enterprise risk management as main functions of RMD. He communicated
three types of investments by treasury:
 Arbitrage
 Hedger
 Speculation
He concluded the orientation by discussing the functions of OCISO.
EXCHANGE POLICY DEPARTMENT (EPD)
Third presentation was given by Additional Director of Exchange Policy Department, Mr. Atthar
Ghafoor. He started the orientation by considering foreign exchange regime and issuance of
forex manual by SBP. He listed following divisions of EPD:
 Investment Division
 Policy Division
 Research Division
 Home Remittance Division
Functions and working of each division was discussed in detail along with their objectives in the
presentation.
PAYMENT SYSTEM DEPARTMENT (PSD)
Fourth presentation was demonstrated by Deputy Director of Payment System Department. The
presenter firstly cleared our concepts of payment and then guided us about payment instruments
and payment channels. He then gave a brief concept about Real Time Gross Settlement (RTGS).
He then noted down following five divisions of PSD and briefly clarified important concepts
under each division:
 Policy Division
 Retail Division
 Program Management Division
 Oversight Division
 Large Value Payment Division

146
BANKING POLICY AND REGULATION DEPARTMENT (BPRD)
Our fifth presentation was given by Shah Nawaz from BPRD. He guided us about the admin
divisions including
 Licensing Division
 Corporate Governance Division
 Basel Accord and Capital Policy Division
 Banking Regulation Division
 Macro Risk Policy and Consolidated Supervision Division
 Banking Laws Division
 Anti-Money Laundering Division
 Restructuring and Privatization Division
 Branchless Banking Division
He ended the orientation with the discussion of topic of Credit Risk Management.
19th June 2019 (Day3)
BANKING SUPERVISION GROUP (BSG)
First presentation of third day was given by Banking Supervision Group. It closely works with
BPRD. The presenter extended the presentation by mentioning the key role of central bank and
policy objectives in accordance with financial system. He further discussed the objectives of
Banking Supervision Group, financial sector supervision and State Bank’s supervisory approach.
He briefly expressed the concept of Macro prudential supervision.
The functions of Banking Supervision Group included offsite surveillance, on-site inspection,
Banking conduct, corrective actions and consumer protection. He elaborated every function and
ended orientation with brief explanation of fake accounts.
MONETARY POLICY AND RESEARCH GROUP
Second presentation of third day was delivered by one of major group of SBP. He discussed the
functions and objectives of the group which included:
 Strengthening monetary policy
 Flexible inflation targeting framework
 Research projects
 Transparency of communication
147
  Strengthening SBP data entrance system
 The presentation depicted involvement of four departments in this group:
 Monetary Policy Department
 Economic Policy and Review Department
 Research Department
 Statistic and Data Warehouse Department
RESEARCH GROUP
Last orientation of the day was given by Research Group. He discussed reporting mechanism and
goals of research and statistic department included in research group. He displayed an
organogram of the group for better understanding of hierarchy in the group. He listed stock
paper, working paper and research bulletin as SBP’s publications. He then categorized the data
required by State Bank for monetary policy purpose and informed us the fact that research group
maintain the library in LRC building of SBP.
20th June 2019 (Day 4)
FINANCIAL MANAGEMENT AND RESOURCE MANAGEMENT GROUP (FMRMG)
First orientation of day four was presented by additional director of FRMG, Mr. Babar Ali who
started presentation by listing two departments of the group:
 Domestic Market and Monetary Management Group (DMMG)
 International Market and Investment Department (IMID)
He further deliberated the functions, working and divisions of DMMMG. He explicated Foreign
Exchange Market and State Banks’s Forex activity in interbank activity. The next topic under
negotiation was Real time Monitoring and Offsite Monitoring. While explaining money market,
he considered liquidity forecasting, monetary management and maintenance of overnight repo
rate. In closing, he point by point conceptualized open market operations.
INTERNATIONAL MARKET AND INVESTMENT DEPARTMENT (IMID)
The orientation was launched by Mr. Ashar Sajjad who discussed following topics in
presentation:
 Investment plans of Reserve Management
 Reserve Management- Portfolio Tranching
 Governance structure of Reserve Management
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  Functions of Department
 Reserve currencies of SBP
 Treasury structure
DEVELOPMENT FINANCE GROUP (DFG)
The presentation was initiated by the depiction of hierarchy adopted by State Bank of Pakistan.
He then defined development finance and State Bank’s approach towards development finance.
He listed the priority sectors and cross cutting themes. He displayed the organogram of
Development Finance Group which contained following departments:
 Agriculture Credit and Microfinance Department
 Infrastructure Housing and SME and Finance Department
 Islamic Banking Department
He individually expressed each of above listed department by describing their functions and
working. In elaborating first department he discussed following points:
 Functions
 Initiatives
 Credit guarantee schemes
 Agriculture financing
 Scale of agriculture credit
 Micro finance sector
 Branchless banking
 E-money issues
Following concepts were discussed in explanation of second department:
 SME financing
 Collateral based financing
 Refinancing
 Green banking
The points that were highlighted and expressed regarding third department are as follows:
Functions of department
 National Financial Inclusion Strategy
 Centers of Islamic Banking
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  Obstacles and challenges
 Financial Literacy Program
INFORMATION TECHNOLOGY DEPARTMENT (ITD)
The orientation of IT group was demonstrated with the display an organogram. Then the
presenter interpreted the functions of department and Management Committee IT Group. Further
following topics were discussed:
 IT Infra structure
 Services enabled by ITG
 Strategies of department
 Control objectives
 Information System Department
 IT Strategy and Project Management Department
INTERNAL AUDIT AND COMPLIANCE DEPARTMENT (IACD)
The orientation was given by Joint Director of department, Mr. Musafar Ali. He termed this
department as line department of SBP along with Risk Management Department. He then
displayed the reporting frame work of independent Audit Department. This department is
involved in direct reporting. It works in pressure free environment because it does not report to
governor of SBP. He then conceptualized admin reporting and solid reporting. Joint Director of
department then catalogued vertical, horizontal and consulting service in types of engagement.
Next topic under consideration was audit cycle which he explained with following diagram:

150
 Formulating
Annual Audit
plan

Preparation of
Followup Audit
Calendar

Audit
Reporting
Engagement

Figure 94 AUDIT CYCLE

 Later on following headings were explained:

 Special audit engagement
 Audit planning memorandum
 Quality assurance of reports
 Opening meeting
 Risk categories
 Preliminary survey
 Audit universe
 Draft audit report
 Formulation of annual audit plan
 Auditable units
 Risk factors
 Audit program development
 Finalizing audit reports
 Engagement supervision

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BANKING SERVICE CORPORATION (BSC)
Next orientation was about subsidiary of SBP, Banking Service Corporation and its functions.
The presenter firstly highlighted the vision and mission statements of BSC and need for creating
BSC.
He listed the cities where BSC is residing and working currently. He informed that BSC is
working in four cities of Sindh, two cities of KPK, one city of Balochistan, seven cities of
Punjab, one in Islamabad and one in Rawalpindi. He then differentiated the functions of SBP and
BSC and further explained the note verification process.
HUMAN RESOURCE DEPARTMENT (HRD)
Next presentation was given by Additional Director Human Resource Department, Mr. Waseem
Ur Rehman. Firstly, he discussed the norms, role and policies of HRD. He explained functions,
working and policies of following divisions of HRD:
 Training and Development Division
 Employee Benefit Division
 Employee Relation Division
 HR Policy Division
 Resource Management Division
EXTERNAL RELATIONS DEPARTMENT (ERD)
Last presentation of orientation week was given by External Relation Department. The presenter
elaborated the working framework of department and termed communication as major objective
of department that constituted financial literacy, press conferences, stability of financial system,
advertisement, media management (Electronic and Print), seminars and translation of publication
and SBP website.
Regarding achievements of department, he listed campaigns and publication style guide. Lastly,
he explained functions of Advertisement and Public Division, Media and Publication Division,
Translational Division and Web Management Division.
21th June 2019 (Day5)
On last day of orientation week, we were guided to report in room 101 of LRC building which
was a meeting hall. Sir Usman Pirani told us to fill the undertaking which constituted the fact
that interns will not in any case disclose the information or working of department of SBP. He

152
then handed us our cards for the purpose of granting access on concerned department’s floor. I
was given card 001 that granted access on seventh floor. I was placed in core department of SBP,
Banking Inspection Department. Our day ended with the fulfilment of details, undertaking and
allocation of departments.
SECOND WEEK
24th June, 2019 to 28th June, 2019
On first day of second week, all interns were directed to report in their concerned departments
swiping their cards on concerned floors. I reported on seventh floor of main building in Banking
Inspection Department (BID) scanning my card on entrance of department. We reported to our
department coordinator Mr. Amir Ansar who welcomed us in department. Eight interns were
placed in BID. Then we were directed to sit in conference hall where Joint Director of BID I, Mr.
Ghazanfar demonstrated us the sketch of department’s working and objectives. He then handed
us a list in which we eight interns were divided into BID I and BID II. I was placed in BID I. We
had a visit of department and had meetings and learning sessions with concerned BID Assistant
Directors.
On second day, we were divided in groups of two and were assigned projects. We were directed
to prepare a report on assigned topic and were given submission date of 19 th July 2019. I was
grouped with Mr. Sajjan Kumar from IBA Punjab University. We were assigned our cabins in
the department. The topic assigned to our group was “Five major Cryptocurrencies and risks
associated with Cryptocurrencies”. Mr. Khurram Fayyaz from BID II was assigned as our
supervisor who assisted us to great extent. We were supposed to email daily working of project
to our supervisor.
Next three days of the weeks were spent in downloading articles and journals related to
cryptocurrencies and analyzing them for better understanding of all concepts related to our topic.
Our supervisor approved the articles and we starting working on them.
THIRD WEEK
1st July, 2019 to 5th July, 2019
We divided our working of project on the weeks left. For third week, we decided to analyze and
write mechanism of cryptocurrencies that involved following concepts:

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Cryptography and its types (Secret Key Cryptography, Private Key Cryptography and Hash
function)
 Emergence of cryptocurrencies
 Working of cryptocurrencies
 Cryptocurrency wallets
 Blockchains
 Block (Content and Header)
 Working of Blockchains
 Mining process
In this week we in detail absorbed the concepts related to working of these digital currencies.
Assistant director from BID I, Mr. Hassan Talal assisted us in this project as he had done many
researches on digital currencies and their working. He explained us the whole peer to peer
mechanism followed by cryptocurrencies. He clarified the whole process of blockchain
mechanism from generation of block, to mining of block by miners.
At the end of the week, we were done with the working mechanism of cryptocurrencies and
structured a report under headings listed above. We got our working approved from supervisor at
the end of the week.
FOURTH WEEK
8th July, 2019 to 12th July, 2019
In fourth week we deeply studied five major cryptocurrencies, their working, market
capitalization, transaction speed, circulating capacity, mining rate, maximum supply and
network. The fiver major currencies under consideration were:
 Bitcoin
 Ripple
 Ethereum
 Bitcoin Cash
 Litcoin
The analysis and study revealed that all these currencies undergo different working mechanisms
as bitcoin follows hashing algorithm SHA 256, Ethereum works on smart contracts, Litcoin
implies scrypt mechanism and Bitcoin Cash follows the concept of Median Time Past. We
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prepared a draft of this section and emailed it to our supervisor. Our supervisor approved our
draft and directed us to merge this to final report document.
This week we also had a lecture from one of Assistant Directors of BID, Mr. Bilal Zafar who
informed us how banking inspectors inspect bank’s computer systems and software (IT
Inspection) and told us various ways of malware injection. He also conceptualized Financial
Inspection, Information System Inspection, Information Technology Inspection, Thematic
Inspection and Full scope Inspection. He notified us about Anti Money Laundering Thematic
Inspection undergoing in various Commercial banks, DFIs and Micro finance banks. Lastly, we
had a session with another Assistant director of BID who gave lecture on Trade Finance.
FIFTH WEEK
15th July, 2019 to 19th July, 2019
During last week in department, we worked on risks that are associated with cryptocurrencies.
We detected following risks during our study and research:
 Technological risk
 Lack of acceptance
 Decentralized status
 Fraud and money laundering
 Scalability
 Legal and regulatory risk
These risks appeared to be highlighting during our working on project. Due to these risks
cryptocurrencies are restricted in many counties and are not accepted by central regulatory
bodies. We concluded our report by mentioning future in sights of this currency and their
restriction in SBP Circular no.3.
Our supervisor attached approval letter with our report and then we submitted the report on third
day of fifth week in Human Resource Department. The next task of the week was preparation of
presentation that we need to present in last week. We worked on our presentation on last two
days of the week and approved our presentation from Mr. Ghazanfar (Additional Director of BID
II).

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SIXTH WEEK
22nd July, 2019 to 26th July, 2019
Last week was presentation week and we were told that interns would be randomly called for
presentation and they have to be prepared daily for presentation until their turn. On first day
presentations from Research Department, Monetary Policy Department and Islamic Banking
Department were called. On second day of week interns from Offsite Enforcement and
Supervision Department, IT Group, Development Finance Group and Finance Department gave
presentations. On third day Mr. Usman Pirani called interns from Exchange Policy Department,
Banking Policy and Regulation Department, Domestic Market and Monetary Management
Department for presentation. Our presentation held on last day along with Payment System
Department, HR Department and International Market and Investment Department.
Mr. Pirani called our presentation on last day of presentations. My group mate presented the first
part including working of cryptocurrencies and first two major cryptocurrencies. I presented the
other part including last three major cryptocurrencies along with risks related to them. Then we
answered questions in questioning session and our time on stage ended.
On last day of week (Friday 26th June 2019) we reported in auditorium and returned our cards to
Mr. Pirani. Then certificate giving ceremony started in which head of HR department awarded us
with certificates. After this ceremony stipend was given to students who were selected on merit
basis for this internship and lastly we had a lecture from Miss Zeila Tahir.

6.2 EXPERIENCE AND KNOWLEDGE ACQUIRED

I derived a very positive experience from this organization. I learnt a great deal from fast paced
environment. SBP was a perfect platform to peer whole image of the economy. It enables new
entrants to establish a versatile perspective.
First of all I learnt core functions of SBP, its subsidiaries, working framework and objectives of
groups and departments. The orientation session we had in first week, highly boosted my
knowledge as orientation of each department contained briefing of several concepts. As I am a
finance student but I managed to gather knowledge about other fields too like IT, HR, STATS
and Research field. This session broaden my vision and dragged my interest in various other
fields of study.

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As I was place in Banking Inspection Department which is one of core department of SBP, I
stuffed my knowledge with every detail and information delivered to us related to inspection
mechanism. The lecture from Joint director, Mr. Ghazanfar assisted me a lot in understanding
working framework and policies of department. I enjoyed great communication with Assistant
Directors of BID. They assisted me in every possible way and satisfied my queries to a great
deal. They helped me in preparation and assembling of my report. In addition to it they guided
me about preparation of SBOTS and gave me overview of their working and inspection in
various banks. I had lectures on derivative markets from one of Assistant Directors. People in
SBP seem very committed to work and organization. Its privileges are really competitive. I learnt
how to work in competitive environment, how to direct efforts in a productive direction, how to
show deep commitment with work, how to boost our knowledge and enhance our skills in an
organization.

6.3 IMPACT ON CAREER

This internship turned out to be very advantageous, instructive, functional and applicable. This
internship provided me platform for building experience. It greatly helped me in setting a
foundation for my career and has a real world experience. It enabled me to build networking to
acquire references and seek new job opportunities. As I always wanted to work in State Bank of
Pakistan, this internship in true sense is going to help me in preparation of my entrance test for
SBP because people in my department were so cooperative and they passed me advantageous
knowledge regarding test and interview stage. This internship taught me how to work in fast pace
environment and manage time. It helped me in implementation of my knowledge and taught me
management skills.
This internship allocated me a supervisor who detected my abilities and trained me for practical
life. It gave me high exposure to workforce culture. I learnt how to behave and act professionally
and nurtured my personal skills that will highly help me in future.

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 CHAPTER 7
7.1 CONCLUSION

State Bank of Pakistan is an idiosyncratic institution that acts as regulatory authority in Pakistan
and functions to stabilize its monetary and financial structure. State Bank of Pakistan has always
works in best interest of economy of Pakistan and encourages its growth perspectives. It fosters
efficient consumption of Pakistan’s resources. It provides remarkable services in different
functional areas and is highly consistent in providing facilitation to their customers. All the
policies and procedures followed by State Bank are economy oriented and are meant for the
purpose of achievement of macro-economic goals. State Bank safeguards interest of customers
or depositors of banks via different strategic functions performed by its various departments.
This objective is achieved by regulating banking sector of Pakistan and this regulatory role is
assisted by advanced technological modes actively opted by State Bank.
The governance structure residing in State Bank of Pakistan is robust and empowers State Bank
to bring sophistication in their working frame work. Its inspection procedures and techniques are
molded with advancement. Returns of various institutions are strictly monitored and supervised
through “Off-site Surveillance”. State Bank of Pakistan act as helping had in appalling need of
Scheduled banks when they ran out of sources of funds and offers remarkable remittance
facilities to scheduled banks at high compromising rates. SBP issues prudential regulations for
the purpose of setting a regulatory framework and their sound working. SBP’s subsidiaries are
performing extensive assistance in performance of its tasks and operations. Banking Service
Corporation enforces the refinement of delivery of service conveyance appliance and is bringing
improvement in their working framework through delivery of their services by bringing
advancement in their managing techniques and electronic working. NIBAF is working to provide
training facilities to State Bank, for improvement of human capital residing in State Bank and
acts as providing institute that grants advanced training to officers of State Bank of Pakistan
preparing them to compete in challenging financial environment. Whereas DPC works to grant
security to depositors of banking sector and reimburse in case of occurrence of default by bank in
fulfillment of obligations. The duty of notes issuance for State bank of Pakistan is performed by
PSPC.

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State Bank is facing decreasing trend owes to the fluctuating interest income and slow growth in
equity. Assets of State Bank are majorly financed by liabilities and depict the fact that liabilities
constitute greater proportion than equity financing. This portrays a disturbing picture of solvency
position of SBP. Utilization of assets is majorly consumed by local investments for last many
years. Assets of SBP are also exceeding its liabilities over last many years. Gold reserves has
enhanced with high percentage whereas in comparison, local currency coins reserves secure a
low proportion. Whereas interest earned had increased with a minor percentage and interest
expense has increased with massive percentage due to loans gained from IMF and other
institutions. The profit of State Bank has decreased with high proportion and has maintained this
decreasing trend over in profit over last two years.

7.2 RECOMMENDATIONS

 State Bank is remarkably performing its every function and operation. There aren’t any
major loopholes in its regulatory and governing frameworks. In my opinion I would put
forward following recommendations by opting which State Bank can further bring
subsistence to its working.
 State Bank needs to hasten its decision making procedures and should introduce working
frameworks for quick decision implementation. Approval stages must be reduced for
eradication of delay in processes.
 Strategic plans regarding long term portfolio investments must be modified by concerned
managerial authorities.
 Even work distribution must be followed by every division of SBP to ensure delegation
of all officers towards their responsibilities.
 Risk exposures should be strictly supervised to ascertain time limit of these exposures.
Supervision is mandatory for detection of loss situations in case of divergence.
 Influence of senior management over rewards, increments and bonuses must be
eradicated and fair distribution of bonuses and rewards must be encouraged through the
bank.
 State Bank should focus on the promotion of micro financing and should contribute great
lot towards financial stability of country.
 SBP must clarify the authority framework regarding management of funds.
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 It must opt latest technological modes and procedures for performance of tasks to
effectively compete with other international financial bodies.
 State Bank should build a separate monitoring unit for supervision of external funds.
 State Bank should extensively broad its network by widening their subsidiaries
throughout the country. SBP can establish BSC offices near small cities of Pakistan to
enable their access to services of BSC.
 Risk management regarding external fund management must be properly evaluated.
Appointment of risk managers should be improvised.
 State Bank can pay more attention towards promotion and understanding of Islamic
Banking principles and modes. SBP can take effective steps for elimination of interest
from banking industry via seminars and group discussions.
 State Bank should grant placement of departments in accordance to interests of SBOTS
hired officers and should advance its lateral hiring processes.

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 REFRENCES
(2019, August). Retrieved from PGIL: http://pgil.pk/wp-content/uploads/2017/07/functions-of-sbp.pdf
(2019, July). Retrieved from State Bank of Pakistan: www.sbp.org.pk
(2019, July). Manual of Banking Inspection Department. Karachi, Sindh, Pakistan: Banking Inspection
Department of SBP.
Arby, F. (2019, July). Evolution, Function and Organization of SBP. Karachi, Sindh, Pakistan.
Circulars no.3 of Banking Inspection Department. (2019). Karachi, Sindh, Pakistan: Banking Inspection
Department of SBP.
Circulars of Islamic Banking Department. (2019). Karachi, Sindh, Pakistan: Islamic Banking Department of
SBP.
Manual of Banking policy and Regulation Department. (2019, July). Karachi, Sindh, Pakistan.
Nibaf. (2019, July). Retrieved from http://www.nibaf.gov.pk/
Pakistan, S. B. (2019). Financial Reports of State Bank of Pakistan. Karachi: State Bank of Pakistan.

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 ANNEXURE

ORGANIZATION LOGO INSTITUTION LOGO

ADDRESS OF ORGANIZATION
STATE BANK OF PAKISTAN, I.I CHANDRIGAR ROAD KARACHI,
PAKISTAN

INTERN
Aamna Shahid
Roll No. 0108-BH-BAF-15

INTERNSHIP COORDINATOR
Sir Safyan Majid
(Lecturer at GC University Lahore and Coordinator of BAF)

Department of Commerce and Finance

GC University Lahore

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