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Management of Financial Institutions - MGT 604

Lecture # 9

STATE BANK OF PAKISTAN - VARIOUS DEPARTMENTS (Contd.)

Banking Surveillance Department

Health of an economy depends on the degree of safety and stability of its banking and

financial system. A sound, stable, and robust banking and financial system is a pre-requisite

for economic well being of a country and its populace. In Pakistan, ensuring the stability

and soundness of the banking system is a statutory responsibility of State Bank of Pakistan.

The banking supervision departments viz. Banking Policy and Regulations Department

(BP&RD), Banking Surveillance Department (BSD), Off-Site Supervision and Enforcement

Department (OSSED) and Banking Inspection Department have been assigned this

important function to work jointly and severally to ensure the soundness of individual banks

and of overall banking industry. The Department is responsible to supervise financial

institutions in the country. The department ensures effective adherence to regulatory &

supervisory policies, monitors risk profiles, evaluate operating performance of individual

banks/DFIs & the industry as a whole while issuing guidelines for managing various types

of risks. It also ensures that banks are adequately capitalized & have policies & systems in

place to assess various risks. The department is also responsible for the implementation of

the Basel II Accord in Pakistan. The function & activities of Credit Information Bureau also

falls within the domain of Banking Surveillance Department. The CIB collect credit data,

under section 25A of the Banking Companies Ordinance 1962, maintain its database &

disseminate credit information to financial institutions online to facilitate their credit

appraisal process.

Main Objectives

To ensure effective regulatory and supervisory oversight of Banks and DFIs.

To assess and review, periodically, performance and future outlook of banking

system.

To monitor risk profiles of banks, to prescribe guidelines etc requiring banks & DFIs

to put in place adequate Risk Management Systems

Developing detailed understanding of New Basle Capital Accord.

To ensure compliance with Basel Core Principles of Banking Supervision.

To provide online collection & dissemination of credit related information to

financial institutions in order to facilitate their credit appraisal process.

Structure of the Department

Risk Management & Analysis Division

This Division is responsible for monitoring different risks faced/assumed by individual

Banks/DFIs & prescribes policies/issues guidelines etc for managing/mitigating these risks.

Basel Accord & Core Principles Division

The primary objective of this division is to implement the Basel II Accord in the banking

sector. This involves participating in capacity building of the banking industry to

understand, adapt, & implement the Basel Accord & then to also monitor compliance in this

regard. The other objective is to ensure compliance with Basel Core principles of banking

Supervision.

Management of Financial Institutions - MGT 604

Banking Sector Assessment Studies Division

This division is primarily responsible for reviewing and assessing, on periodical basis, the

banking system performance, and its future outlook. The division also conducts various

stress testing exercises to assess the resilience of the banking sector to various shocks.

Credit Information Bureau (CIB)

Collects & disseminates credit data from & to financial institutions to facilitate their credit

appraisal process. It maintains database of all borrowers who avail credit facilities from

financial institutions & provides online access to financial institutions to submit monthly

credit data & to generate CIB reports.

Coordination & Administration Unit

The primary objective of this division is to provide necessary support services to the

Department's staff and officers to facilitate them in effective & efficient discharge of

assigned functions/ responsibilities. It coordinates with other departments & external

organizations for timely provision of support services and technological assistance.

It is also responsible for receipt/dispatch of correspondence & records of inward & outward

mail, besides preparing a consolidated business plan for the department & its monitoring &

follow up for effective implementation. The Division also coordinates on various training

activities for imparting training to the staff/officers.

Training Programs by SBP

This much coordination among supervisory departments attempts to ensure stable &

efficient banking system.

Economic Policy Department

Economic Policy Department is primarily engaged in eight fundamental activities. These

include:

Preparation of Monetary Policy Statement

Preparation of Monetary Surveys

Preparation of Annual Credit Plan

Consultations with the IMF

Computation of REER index;

Computation of domestic public debt

Analysis of financial markets

Empirical research papers

The Department also deals with external sector issues and references on money, credit, and

exchange rates management. For operational purposes, the Department has been divided

into the following four groups:

Monetary Survey & IMF Consultations Group

This group is responsible for preparation of Monetary Survey, details of

Government budgetary borrowings, commodity operations, bank credit to private sector,

public sector enterprises including (major autonomous bodies) and other items separately

for SBP and Scheduled banks.

This group is responsible for preparation of Monetary Survey, details of

Government budgetary borrowings, commodity operations, bank credit to private sector,

Management of Financial Institutions - MGT 604

public sector enterprises including (major autonomous bodies) and other items separately

for SBP and Scheduled banks.

In addition to this, the group is also assigned the task of preparation of material for IMF

Consultations, World Bank and Ministry of Finance, monitoring of Performance Criteria

and disposal of queries and references.

Money, Credit & Prices Group

The group is responsible for preparing credit plans, working papers & performs

Secretariat work. Other assignments include credit targeting, credit monitoring, banking

issues & reforms, Inflation watch, analysis of lending rates, large scale manufacturing

developments & disposal of references on credit allocation.

The group also prepares periodic reports/reviews on Credit assessment of Private

sector, credit assessment of govt. sector, analysis of tax revenue, domestic debt, & impact

analysis of various policy initiatives. The group also intends to initiate work on micro credit

and SMEs.

Financial Market & Exchange Rates Group

This group is responsible to keep constant watch & analyze developments in the

financial markets. It prepares and supplies variety of background information for circulation

in meetings.

Further, it is also assigned the task of dealing with the matters relating to exchange

rate and foreign exchange reserves.

External Sector Group

The group deals with the matters relating to Pakistan's relationship with International

Financial Institutions like

IMF: International monetary fund.

IBRD: International Bank for Reconstruction & Development.

ADB: Asian development Bank.

The issues of WTO and SAARC FINANCE.

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