State Bank highlights framework and policies to strengthen banking system

State Bank Governor, Mr. Tariq Bajwa quashed any fears against risings double deficits (trade, current account) by citing increasing infrastructure demands and the imports resulting from those growth fueled developmental projects within CPEC umbrella and outside of it.

Mr. Tariq Bajwa in his Directors Report issued on 30th of October has highlighted State Bank’s performance over the last year. The report delves into the detail of laws, frameworks and policies that have been implemented by the Central Bank in an effort to strengthen the financial institutions in Pakistan.

On the policy front, Governor mentioned low inflation as one of the key factors of Monetary Policy Committee’s (MPC) decision to continue its accommodative stance vis-a-vis policy decisions and continue with an unchanged policy rate during 2017. He said that State Bank has released minutes of Policy Meetings in an effort to increase transparency and credibility of the process. SBP Governor said that looking at the Macroeconomic factors affecting the economy and the consequences thereof on the policy rate and other financial developments that have been resultant of these demand led factors.

Highlighting Central Bank’s approach towards changing international financial landscape, he said that SBP has gradually increased its allocation to Short Term US Treasuries as yields on treasures improved during the year. Reviewing last year’s SBP Portfolio performance he said that yield on FX Portfolio increased to 0.85% in FY17 compared to 0.79% during FY16 all this while maintaining Portfolio at low risk and high liquidity. Furthermore, he mentioned that passing of Deposit Protection Corporation Act was a huge milestone as new act will fill the gap in financial stability framework.

He outlined the active role State Bank has been playing in promotion of Islamic Finance and shared recent development to uplift Islamic Finance through a systematic and fair legal framework. He mentioned that, passing of Finance Bill 2017 which ensured tax neutrality to Islamic Banking Institutions which will help create a level playing field for Islamic Finance against Conventional Finance. Before the passing of bill, financial landscape was favoring conventional mode of finance which had hampered the growth of Islamic Finance in the country.

In addition to that, he highlighted the changing financial intermediaries and shift towards digital approach in the international markets and its impact on local economy. He was of opinion that despite an unprecedented growth in digitization, cash based payments still have a long way to go in foreseeable future given the cash based nature of the economy.

He said increasing investments in strengthening of HR and IT systems at SBP has become a priority in light of the SBP Vision 2020. He said that training and development are the corner stone to SBP’s strategy to hire and maintain suitably trained and motivated workforce.

Conclusively, he said that State Bank has taken several steps to assess, measure and mitigate risks associated with its mandate and function.