STATE BANK OF PAKISTAN - VARIOUS DEPARTMENTS:Banking Inspection Department

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Management of Financial Institutions - MGT 604

Lecture # 7

STATE BANK OF PAKISTAN - VARIOUS DEPARTMENTS

Agricultural Credit Department

Established under Section 8(3) of SBP Act 1956, is mainly responsible to meet credit needs

of agriculture that being the mainstay of Pakistan's economy generates nearly one fourth of

the total out put and 44% of total employment and is the major source of foreign exchange

earning.

To operate as a focal point in SBP for all agriculture and rural finance policies,

programs and projects.

To assess/estimate the credit needs of farm & non farm sector in rural areas.

To review the issues and challenges faced and developments taking place in agriculture and

rural finance both in the country and elsewhere to develop an adequate knowledge and

information base for policy formulation etc

To formulate agri & rural finance policies in consultation with stakeholders to

ensure adequate flow of institutional credit in rural areas.

To monitor growth and trends in agri /rural finance portfolio of banks & financial

institutions.

To collect periodical agri/rural finance data for analysis, policy formulation and

dissemination to general public.

To advise Federal and Provincial Governments, Banks, Cooperative Banks &

agriculture chambers on agri & rural finance issues.

To initiate and undertake information dissemination and awareness building

programs for farmers and special training programs for commercial banks.

To build SBP rural and agriculture finance capacity

To operate as a Secretariat for Agriculture Credit Advisory Committee (ACAC)

The organization of the Department is spread over the following Divisions: -

1. Division I Agriculture Credit Estimation & Target Monitoring Division

2. Division II Agriculture Financing Policy Division

3. Division III Services, Training & Development Division

Banking Inspection Department

(BID) is one of the core departments at SBP. Its mission is to strive for soundness &

stability of the financial system and safeguard interest of stakeholders through proactive

inspection, compatible with best international practices. BID plays a pivotal role in meeting

SBP's main responsibility of supervising the financial institutions to maintain soundness of

the system and protection of the interest of depositors, thereby ensuring public confidence

in the system. In order to assess a financial institution, BID conducts regular on-site

inspection of all scheduled banks inclusive of the foreign banks & DFIs. The present

supervisory structure at the department is institution focused whereby concerned Desk In-

charges have been assigned specific institutions for effective monitoring through on-site

examination, off-site reports from Banking Supervision Department and various market

reports. The regular on-site inspection is conducted on the basis of CAMELS Framework.

(Capital, Asset Quality, Management, Earnings, Liquidity, Sensitivity and System

Controls). CAMELS are an effective rating system for evaluating the soundness of

Management of Financial Institutions - MGT 604

financial institutions on a uniform basis and for identifying these institutions requiring

special attention or concern. Here the focus of inspection is generally on risk assessment

policies & procedures of the banks and control environment to keep attached risks within

acceptable limits and compliance with laws, regulations, and supervisory directives.

Risk Assessment Polices

In continuation of the inspection process, discussions are held with external auditors to

review banks' internal controls, compliance with legislation & prudential standards and

adequacy of provisions. Here it would be important to mention that BID works in close

coordination with Off-Site Surveillance Desk at Banking Supervision Department and other

departments in SBP. BID conducts the regular full scope examination of banks pursuant to

an inspection schedule; however, flexibility exists in policy for frequency of inspections

depending upon the need to maintain safety & soundness. CAMELS rating are criteria to

determine the frequency of inspection of banks as weak institutions are given greater

attention. Special investigations (targeted inspections) are also conducted as and when

circumstances so warrant on the basis of complaints or market reports about specific

institution.

Financial Markets Strategy & Conduct Department (FSCD)

FSCD is one of the three new Departments constituted on restructuring of Exchange & Debt

Management Department (EDMD) and Investment Services Cell (ISC) on September 14,

2006. The Department is responsible to formulate Policies & Regulate conduct of Domestic

Money, Exchange, Securities, and Derivatives Markets as well as to disseminate market

data/analysis & to set-up strategies/ products for market development.

Functions:-

To fulfill above, the Department has been divided into three Divisions, each Division is sub-

divided into different units.

Markets Policy & Regulations

Review & formulate Market related Policies/Regulations vis-à-vis FEEL, CRR/SLR,

Dealers Code of Conduct, Public Debt Act, Market Settlement Issues, PD System, Interbank

Brokerage monitoring etc.

Secretariat for the Derivatives Approval & Review Team (DART).

Review & coordinating with Banking Inspection Department on enforcement of

Treasury specific inspection comments viz existing regulations governing FX, Derivatives

& Debt Markets.

Policy issues pertaining to other departments etc.

Coordination with relevant Market Associations, Committees & Players e.g., Sub-

Committee on Treasury & Capital Markets, etc.

Market Analysis & Forecasting

Exchange Rate & FX Market Analysis

Analysis of Money and Debt Markets

Derivatives market analysis.

Preparation of monthly market update/ Quarterly Financial Market Review.

Liquidity Forecasting & Data base Management of Permanent & Floating Debts

Assist in formulation of Sovereign Domestic Debt plan.

External Debt maturity Profile.

Management of Financial Institutions - MGT 604

External Debt maturity Profile.

Market & Product Development Strategies

Product development initiatives for Sovereign Debt instruments. Derivatives

products/strips, Islamic Instruments.

Market Development projects like...Listing of GOP Securities. Automated

Auction/Payment System. IFSB Standards & Islamic market Development. Market

Systemic Issues and Market Benchmarks.

Market Publications.

Foreign Exchange /Money Market, Derivatives Market Analysis.

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