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MGT604 - Management of Financial Institutions - Lecture Handout 08

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Islamic Banking Department

  • Islamic Banking Department was established on 15th September, 2003 and has been entrusted with the huge task of promoting & developing the Shariah Compliant Islamic Banking as a parallel and compatible banking system in the country.
  • State Bank of Pakistan wants to develop a progressive and sound Islamic banking system that is in line and compatible with the global financial sector, providing innovative Shariah compliant products and services so as to achieve equitable economic growth.
  • One of the biggest challenges being faced by this growing industry is the dearth of professional Islamic Bankers and capacity building in this regard is one of the top most priorities for the promotion of Islamic Banking.
  • In order to play our regulatory and supervisory role more efficiently we are working on the areas like Risk Management, Corporate Governance, Prudential Regulations, Accounting & Shariah Standards etc. regarding Islamic Banking

Islamic Banking Department consists of following four divisions:

  • Policy Division
  • Shariah Compliance Division
  • Business Support Division
  • Shariah Board Secretariat

Islamic Banking is one of the emerging field in global financial market, having tremendous potential and growing at a very fast pace all around the world.

Domestic Market & Monetary Management Department

DMMMD is a newly constituted department of SBP. The idea of constitution of this department was to combine FX and money market activities under one roof, hence Securities department taking care of money market activities and Dealing room taking care of FX market activities were merged together on February 17, 2000.

Main Objectives

  1. Monetary Operations.
  2. Raising short term and long-term domestic debts for the Government.
  3. Management of Government Debts
  4. Providing funds to the financial institutions as lender of last resort.
  5. Monitoring of money and Foreign Exchange market activities.
  6. Intervention in the Foreign Exchange market.
  7. Reserve Management.

The Primary functions of Domestic Market & Monetary Management Department fall
into the following categories.

1. Exchange Rate Policy Management

  • Stable Exchange rates and Forward Premiums at appropriate/ sustainable levels
  • Sale & Purchase of third currencies at optimum prices
  • Smooth & sufficiently liquid Foreign Exchange Market
  • Optimal accumulation of Foreign Exchange Reserves and Forward Portfolio.

2. Monetary Policy Implementation.

  • Maintenance of stable interest rates in inter-bank money market through proactive management of Money Market liquidity.
  • Raising short-term government debt and developing yield curve through auction of Market treasury bills.
  • Proactive management of Money Market Liquidity through Open Market Operations.
  • Providing liquidity to the market through SBP 3 day’s repo facility.

3. Reserve Management

  • Optimal utilization of Reserve Portfolio and maximum returns on investment of surplus reserves. Hiring of investment consultant & Fund Managers for optimizing returns.

4. Debt Management.

a) Domestic Debt

  • Developing the markets for government securities.
  • Coordination with monetary and Fiscal Policies.
  • Raising short term and long term domestic debt for the government.
  • Data base management of permanent and floating debts.

b) External Debt

  • Monitoring and ensuring prompt payment of external debt installments through State Bank of Pakistan and commercial banks.
  • To generate reports on external debt, connectivity of Debt Management and Financial Analysis System have been established between Economic Affairs Division & SBP.

Structure of the Department

  1. Local Foreign Exchange Division.
  2. Local Money Market Division.
  3. In house Reserve Management Division.
  4. Outsourcing Reserve Management Division.
  5. Government Securities Division.
  6. Debt Management Division.
  7. General Division.

Research Department

Research Department assumes an important role by providing key inputs for economic policy formulation through its analytical reviews and research work. Clearly, superior analysis of economic policies would be reflected in sounder macroeconomic managementby the central bank and, in turn, the evolving structure of monetary and financial system
would be more stable, and resilient against internal and external shocks. Thus the Research Department is expected to contribute significantly towards the main objectives of the State Bank of Pakistan.

Finance Department SBP

Functions of Finance Department

  1. Maintenance of books of accounts and preparation of financial statements of the Bank in accordance with the International Accounting Standard, as adopted by the Bank.
  2. Coordination and facilitation for Business planning and budgeting function in the Bank and periodic reporting to the management and to the Board.
  3. Management of Federal, Provincial, and District Governments Accounts. Policy & operations related coordination Govt. agencies.
  4. Maintenance of foreign currency accounts/ investments and execution of International payments and receipts.
  5. Maintenance of accounts relating to International Organizations and Donor Agencies like International Monitoring Fund, Asian Development Bank, Asian Clearing Union etc
  6. Currency issuance and its overall management.