KIBOR

What Is a Bank Rate?

 A bank rate is the interest rate at which a nation's central bank lends money
to domestic banks, often in the form of very short-term loans. Managing the bank
rate is a method by which central banks affect economic activity. Lower bank
rates can help to expand the economy by lowering the cost of funds for
borrowers, and higher bank rates help to reign in the economy when inflation is
higher than desired.
 KIBOR
K = Karachi
I = Inter
B = Bank
O = Offered
R = Rate

 KIBOR is the average interest rate at which banks offer to lend money to
one another in the so-called wholesale money markets.
 KIBOR
History

 In Year 1999 Summary for KIBOR was presented.

 In Year 2001 It was Implemented on Money
Market.
 In Year 2004 It was used as Reference Rate for
Corporate Lending In Feb 2004 for the first time,.
 KIBOR
Methodology:
 Every morning SBP demands quotations for lending/
borrowing rates of (1-week rates to 1-year rates) from
Primary Dealer i.e. around 20 strong commercial Banks of
Pakistan and these rates are floated on Reuters……
 SBP eliminates 4 Top quotes from higher side and 4 bottom
quotes from lower side and take the Average of Quotations
of in-between....... That’s the KIBOR for the day.
 Around 11 A.M every working day it is provided by SBP.
 Authenticity is confirmed by making the contributors liable
to accept Bid/Offer within 15 minutes from the time of
update.
 BID RATE & OFFER RATE

 BID RATE: Rate the bank wish to pay on any borrowing;

 OFFER RATE: Rate the bank will want to receive on any
lending. BID rate is always less than OFFER rate.
 FLOOR: A bank shall not decrease rate than floor rate.
 CAP: A bank shall not increase rate than the cap rate This is used
in exception cases Bank never goes up the ceiling nor goes below
the floor.
 ADVANTAGES
 KIBOR AS BENCHMARKING: Benchmarking is the process of comparing one's
business processes and performance to industry bests or best practices from other industries.
Dimensions typically measured are quality, time and cost.
 To encourage transparency
 Promote consistency in market based pricing
 Improve management of the market risk undertaken by banks.
 No Security problems
 True picture of profit margin
 Awareness of profit margin
 Tell ‘s about cost of deposits