Pakistan's Foreign Exchange Reserves

Pakistan's foreign exchange reserves rose to $18.04 billion in the week ending Aug. 13, from $17.97 billion the previous week, a senior central bank official said on Thursday. Reserves held by the State Bank of Pakistan (SBP) rose to $14.55 billion from $14.46 billion a week ago, while those held by commercial banks fell to $3.49 billion from $3.51 billion. Foreign exchange reserves hit a record $18.31 billion in the week ending July 30. Pakistan's foreign exchange reserves were boosted in June by inflows of $411 million, including a loan of $191.9 million from the World Bank, and another loan of $196.8 million from the Asian Development Bank.

Higher export proceeds and a record inflow of remittances have helped Pakistan's forex reserves grow steadily. According to official data, remittances rose 38.57 percent to $1.1 billion in the first month of 2011/12 fiscal year, compared with $791.18 million in the same period last year. In May 2010, Pakistan received $1.13 billion in the fifth tranche of an $11 billion International Monetary Fund (IMF) bailout program.

Faysal Bank Obtained NOC From SBP Regarding RBS Acquisition

The State Bank of Pakistan (SBP) on Wednesday granted No Objection Certificate (NOC) to Faysal Bank Limited for the purchase of Royal Bank of Scotland Pakistan operation. Faysal Bank Limited (FABL) has already entered into an agreement to acquire interest in the Pakistan franchise of Royal Bank of Scotland (RBS Pakistan) as per following;

Interest to be Acquired     =  99.37 percent interest

Consideration to be Paid  = Cash  Euro 41.000 million (equivalent to Rs 4.298 billion)

Consideration Per Share  = Rs 2.52 per share

Expected New Governor of State Bank of Pakistan

The much promised race for the coveted post of Governor of the State Bank of Pakistan has failed to materialise. By all indications so far, it is going to be a one-man run and the acting Governor Yaseen Anwar appears poised to become head of the central bank.

Most banking and financial market analysts believe that he has beaten whatever competition he had initially and emerged as the most viable replacement for Syed Salim Raza who resigned as governor of the bank on June 2, citing “personal” reasons. “Mr Anwar has now emerged as the strongest – and possibly the only – candidate for the top job in the bank,” a senior Lahore-based banker told Dawn last week. The financial markets have been speculating different names – including but not limiting to former SBP Governor Dr Shamshad Akhtar and former special finance secretary Dr Ashfaque Hasan Khan – for the governorship of the bank ever since Syed Raza quit.

Some finance ministry officials say that Dr Akhtar had already turned down the government’s offer while Dr Khan was never approached for the job. Others, whose names had popped up in the market for the job, either did not meet the criteria for the governorship or were not considered competent enough by the authorities.

The banker pointed out that the acting governor had accompanied President Asif Ali Zardari on his recent China visit, which indicated the presidential preference for him for the post. But not everyone agrees with him.

SBP has Increased Export Refinancing Rates

In line with the conditions mentioned in Letter of Intent (LOI) issued to IMF by the Government of Pakistan in December 2009, the State Bank of Pakistan has revised mark-up rates for Export Finance Scheme (EFS) and Long Term Finance Facility (LTFF). According to the circular, mark-up rates for EFS have gone up by 50 basis points (bps) to 8% and for LTFF up to 110 bps. Detail of the mark-up revision is shown in the table below:

-----------------------------------------------------Current------ Previous------ Change – bps

EFS -------------------------------------------------8.00%------- 7.50% -----------50

LTFF- up to 3 years ------------------------------10.30% -------9.20% ----------110

LTFF- Over 3 years & up to 5 years----------10.40% -------9.70% ------------70

LTFF- Over 5 years & up to 10 years --------10.50% ------10.25% -----------25

What LOI says with regard to refinancing schemes?

Following in the excerpt of Letter of Intent (LOI) issued to IMF:

The SBP will rationalize its refinancing schemes and eliminate the subsidies resulting from below-market interest rates. As a first step, the interest rate for the Export Financing Scheme (EFS) and the Long-Term Financing Facility (LTFF) has been increased on November 1 to 8 percent and 9.2–10.25 percent (depending on tenor), respectively. Further steps will be taken to bring the rate to the level of the benchmarks

of weighted average yield on six-month T-bills and yields of the same tenor for Pakistani Investment Bonds, respectively. We will continue with gradual increases to reach levels two percentage points below the benchmarks by end-September 2010, and rates will equal their benchmarks by end-September 2011.

It appears that other increase of 100 bps – 150 bps in re-financing rate in September 2010 can not be ruled out as gap would still exist between refinancing rates and benchmark rates (mentioned above).

Implications

With no doubts in mind, profitability of export related companies is expected to hurt badly as most of them are dependent on bank borrowing for the working capital and capex needs. This is also expected to have a negative impact on the banking sector in the shape of higher non-performing loans as increase in financing cost would damage the debt servicing capability of export related companies. Since, export related textile and cement companies have financed their working capital and capex requirements through above mentioned re-finance scheme. We believe increase in rates would have a negative impact on their bottom-lines.

Source: Arif Habib Limited

RBS - Who Will Acquire This Time

Earlier, the MCB Bank had agreed to acquire RBS, however, the deal could not be materialised due to sponsor share dispute between the central bank and the MCB management. This time The State Bank of Pakistan has given green signal to the two banks for commencing due diligence for the acquisition of Royal Bank of Scotland (RBS). They are

1. Faysal Bank Limited and 
2. Egypt's EFG-Hermes 

The RBS has put on sale its business in 36 countries including Pakistan after world-wide losses of $38 billion in 2008 due to the global economic recession.

Written Off Loans From 1971 to 2009

The Supreme Court was informed here on Tuesday that Rs 256.66 billion loans to 6,69,819 borrowers were written off in the last 38 years (1971 to 2009) by public as well as private banks of the country. According to a summary submitted by the State Bank of Pakistan (SBP) in the apex court, category wise detail is as under;

Category One:

Loans up to Rs 0.5 million = Rs 213.79 billion

Written off to number of borrowers = 23,445 in the last 38 years.

95 percent were written off during the period of 1997-2009.

Category Second:

Loans from Rs 0.5 million to Rs.2.5 million = Rs 42.871 billion

Written off to number of borrowers = 646,374 in the last 38 years.

Earlier, on December 22, 2009 a bench headed by Chief Justice Iftikhar Muhammad Chaudhry was told that loans of Rs 193. 404 billion to 19,711 borrowers were written off during the last 12 years (1997-till date) by 37 banks operating in the country. According to the details submitted by SBP, top banker which have written off bank loans are as under;

Habib Bank Limited (HBL) = Rs 49.63 billion,

United Bank Limited (UBL) = Rs 38.45 billion,

National Bank of Pakistan (NBP) = Rs 8.54 billion,

Allied Bank Limited (ABL) = Rs 12.17 billion,

MCB Bank Limited = Rs 11.83 billion,

Industrial Development Bank = Rs 11.79 billion and

Zari Taraqiati Bank Ltd = Rs 8.76 billion.