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BANKING SECTOR REVIEW
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ISSUE # 34 ----- Aug 24 - Aug 30, 2015

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The banking sector through CY13 faced tough challenges with external factors including law and order situation, political uncertainty, strikes causing closure of bank branches in distressed areas to name a few. State Bank of Pakistan require banks to have minimum capital of PKR 10 billion by December 2014, which will be a challenge for banks below the required threshold forcing another round of mergers and acquisitions. The CAR for the banking industry was 14.9 percent in CY13 as compared to 15.6 percent as on CY12. ADR for the banking industry was 48.6 percent in CY13 as compared to 52.6 percent as on December CY12. Despite facing the above challenges, banks have done well as doing business.

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PAGE TOP STORIES

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EXCLUSIVE INTERVIEWS
& PAGE SPECIAL REPORTS

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AIMING GDP OF OVER 8PC CAN HELP OVERCOME LONG ECONOMIC CHAOS
INTERVIEW WITH MR. BARKATULLAH LONE, ECONOMY ANALYST
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Discount Rate is the subject of the Monetary Policy exactly the same way as the Exchange Rate is the subject of Financial Policy. State Bank of Pakistan reviews Discount Rate quarterly keeping in view the inflation rate, government borrowings, trade deficit, exchange rate and other macro economic indicators. Based on various economic factors, SBP either keeps the rate unchanged or increases or decreases it. This rate then becomes the benchmark for all the commercial banks. Discount Rate is a tool through which inflation rate is artificially controlled, i.e., it is increased when inflation rate goes beyond a limit as the increase in discount rate ensures subdued supply of money in the economy and vice versa......

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LOWER INTEREST RATE SPURS ECONOMIC GROWTH
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The main advantage of lower interest rates is the growth effect on economic activities. By reducing interest rates, the Central Bank can help increase business spending on capital goods including economy's long-term performance and can increase household expenditures on homes or consumer durables.
Low interest rates improve bank balance sheets and banks' capacity to lend. During the last financial crisis, many banks, specifically some of the largest banks, were found to have too little capital, which limited their ability to make loans during the initial stages of the recovery.......

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OIL PRICES
OIL WEEKLY BASKET PRICE

 (US Million $)
PERIOD PER BARRELS
Aug 21, 2015 45.31
Aug 14, 2015 47.20
Aug 7, 2015 47.65
July 31, 2015 50.92
July 24, 2015 53.19
July 17, 2015 54.59
July 10, 2015 55.07
July 3, 2015 58.90
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PREVIOUS ISSUES

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PAKISTAN WEATHER
3 DAYS FORECAST

  MIN MAX HUM% FORECAST.
KARACHI
SUNDAY 27 32 65 cloudy
MONDAY 27 33 64 cloudy
TUESDAY 27 33 63 cloudy
LAHORE
SUNDAY 24 34 71 sunny
MONDAY 26 34 70 sunny
TUESDAY 27 36 65 cloudy
ISLAMABAD
SUNDAY 22 33 67 sunny
MONDAY 23 33 67 storms
TUESDAY 24 36 67 sunny

updated: Sun-Tue, Aug 23 - 25, 2015

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COVER STORY

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BETTER INFRASTRUCTURE: A SOURCE OF ATTRACTION FOR FDI IN PAKISTAN
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For countries like Pakistan, FDI is necessary as it involves participation in management, joint-ventures, transfer of technology and expertise. Market size has always remained a source of attraction for investors. According to World Bank report Pakistanís economy is the 23rd largest in the world in terms of GDP growth. Pakistan has a very vibrant market and a large consumer base of more than 180 million people. Pakistan is the 26th largest economy in the world in terms of purchasing power parity......

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COVER STORY
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FOCUS NEEDED TO REGAIN LOST GLORY OF TEXTILE TRADE WITH TURKEY
INTERVIEW WITH DR. MIRZA IKHTIAR BAIG, FORMER ADVISOR TO THE PM ON TEXTILE AND FORMER CHAIRMAN PAKISTAN DENIM MANUFACTURERS EXPORTERSí ASSOCIATION
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PAGE had an exclusive conversation with Dr. Mirza Ikhtiar Baig on Turkish Textile Market and questions regarding the lost Turkish market for Pakistani exporters were put. The excerpts of the conversation are as follows:
Turkey used to be one of the biggest market of Pakistani textile products mainly cotton yarn, grey & denim fabric and garments and Pakistanís exports to Turkey reached US $1 billion mark few years ago. Most of the textile mills particularly denim manufacturers were exporting more than 50% of their millís production to Turkey only, thereby having heavy reliance on Turkish market.

Pakistanís vast cultivable lands, fertile soil, large irrigation network, skilled and diligent workforce of farmers, make agriculture the natural choice for livelihood in the country. Therefore, nearly 70 percent of Pakistanís population is directly or indirectly employed or engaged with the agricultural sector.......

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COVER STORY
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IMPACT OF GAS POLICY ON AGRARIAN ECONOMY
PRIORITIZING GAS DISTRIBUTION FOR AGRI GROWTH

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Pakistanís economic sustainability is primarily based on its agricultural output. Our major export and the biggest industry -- textile is primarily reliant on the cotton crop as its raw materials. Pakistanís food crops are also playing a key role in improving food-security on an international scale. The world considers Pakistan as an important agricultural producer, so the government must facilitate and provide rich incentives for the agricultural sector.

Pakistanís vast cultivable lands, fertile soil, large irrigation network, skilled and diligent workforce of farmers, make agriculture the natural choice for livelihood in the country. Therefore, nearly 70 percent of Pakistanís population is directly or indirectly employed or engaged with the agricultural sector. Agriculture is rightfully considered as the back-bone of Pakistanís economy...........

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COVER STORY
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CREDIT TO PRIVATE SECTOR STAYS DULL DESPITE HEFTY CUT IN INTEREST RATE
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While the State Bankís policy rate of 6.5 percent is the lowest in the countryís 42 years, yet credit to the private sector has not gone up. Considering that eight months ago it was 9.5 percent, this momentous cut in the policy rate should have seen loans rise. However, as per figures received, neither loans are on rise nor there is any positive impact on car financing. Financial experts attributed this situation to the Ďlag,í and the bulk of the borrowing done by the government.

Both arguments are true, but there might be another facet to this; perhaps one needs to look at loans to the textile sector, which forms the largest component of private sector loans (around 21 percent). The first thing that becomes obvious when looking at the textile sector credit is seasonality Ė loans peak in the winter months around December and March, followed by a decline in the summers and bottoming out around August and September. This is because cotton is harvested during the winter season......

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COVER STORIES
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SHIPPING
NEWS

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INVESTMENT POURS INTO FREIGHT
Global trade and shipping figures continue to disappoint, but investment into the freight sector continues, with logistics providers hoping better routes to market will help buck the trend.
In Asia, DHL has initiated an extension of its road freight service linking the previous network of Singapore-Malaysia and Thailand up with Vietnam and China. The company will now provide its less-than-truckload service across all five nations, which it says greatly reduces the time it takes for goods to reach market.
Much has been made of the transport infrastructure gap in Asia, and the multi-billion dollar net drag it has on regional trade. Under-investment, bureaucracy, security issues and terrorism all combine to mean that sea transport can be expensive and time-consuming.....

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COVER STORY
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SAARC REGION NEEDS INCLUSIVE ECONOMIC GROWTH
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The Prime Minister of Nepal Mr. Sushil Koirala has rightly pin pointed with a wake up call that despite remaining in proximity, the countries in the South Asian Association of Regional Cooperation (SAARC) region did less than 5 percent trade among them as lack of physical connectivity; political will and long list of products under sensitive list have remained stumbling block for enhanced trade and investment in the SAARC region. Actually, a huge population living in the SAARC region is below the living standards despite presence of enormous economic potential and resources in the region due to lack of collective approach and inclusive economic growth. Although all these problems are dilated upon extensively at all levels yet lack of will and understanding the problems remained unresolved adding to the hardships of the people in the region for decades............

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RESEARCH CORNER

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AFFORDABLE HOUSING FINANCE VITAL FOR LOW COST HOUSING

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Presently, Pakistan is confronting with a huge issue of housing backlog of nearly 9.0 million units, out of which, a great part pertains to the economically disadvantage families and members of the lower middle income group. This, coupled with a weak governance regime of urban civic institutions, has resulted in the mushroom development of katchi abadis and slums/squatter settlements in key metropolitan regions.
The Government of Pakistan is completely committed to resolve the challenge of housing crisis in Pakistan mainly for the low income groups. It has proclaimed an inclusive housing finance scheme, which adds construction of 1,000 clusters of 500 houses each for low income families in the entire country. ....

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CAPITAL MARKETS
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COVER STORY
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PROMISING REAL ESTATE MARKET OFF TO SLOW START
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Real estate is a progressive sector of the Pakistani economy. Pakistan spends over $5.2 billion on construction per year. It is an important sector for Pakistanís economy, employing over 5 percent of the labor force directly in construction and much more in related industries. The share of construction in industrial sector is 11.5 percent and is one of the potential components of industries. The construction sector has registered a growth of 11.3 percent against the growth of (-) 1.68 percent of last year. This is also highest growth level achieved since 2008-09. The share of the industry in GDP stood at 2.4 percent in the year. Pakistanís construction industry has been expanding due to increase in infrastructure activities and demand from housing sector.....

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IN THE NEWS

Prime Minister Nawaz Sharif on Thursday held a groundbreaking ceremony for two controversial Chinese nuclear plants Karachi which are set to add 1,100 megawatts to the energy-starved country's electric grid, source said to research analyst-PAGE. The plants, which are located just 20 miles from the burgeoning metropolis of around 20 million people, have stoked fears among scientific experts and residents, and their construction was earlier stayed by a court order. Two new nuclear power plants, K2 and K3 will be built near Kanupp (Karachi Nuclear Power Plant) which was built 43 years ago.......

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INDIA IN THE NEWS

MUMBAI: Maruti Suzuki, the country's largest car maker, will be launching the Ciaz Hybrid, touted as the most fuel-efficient car in the country at 28 km/litre, thus raising the bar for fuel efficient cars in India.
The new vehicle, which will replace the existing Ciaz diesel, and challenge segment leader Honda City, will also put the spotlight on diesel cars, which were losing the edge to petrol variants. A person close to the company said the technology will be a key differentiator for the company in the bigger car space, where it had a limited presence......
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GULF NEWS

Dubai: The cost of living in the UAE has increased considerably in July compared to a year earlier, with the consumer price index (CPI) soaring by 4.43 per cent, the highest since February 2009. The countryís inflation has been fueled primarily by the rise in the cost of housing and utilities, education, food and transportation, according to the July 2015 CPI released on Thursday by the National Bureau of Statistics.
Housing and utilities, a major contributor to the CPI, registered the highest annual inflation rate at 9.95 per cent between July 2014 and July 2015, followed by education (3.93 per cent) food and soft drinks (3.4 per cent)........

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ANNOUNCEMENT

The leading cement giant, Lucky Cement Limited has signed a contract with Siemens Pakistan to implement SAP Enterprise System. Following on its legacy of growth and innovation Lucky Cement Limited would be the first cement company in Pakistan to start implementation of SAP on HANA database.
"We have always focused on innovation and excellence as the building pillars of our continuous growth," said Executive Director, Noman Hasan. "Through SAP, we aim to drive progress through greater integration of our various locations, agility and enhanced efficiency of our operations and further efficiencies in our processes.".....

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EXCHANGE RATES
Pakistan Open Market Rates

BUYING SELLING
US $ 103.7 103.95
UK POUNDS 161.75 162
KUWAITI DINAR 337.35 337.6
SAUDI RIYAL 27.5 27.75
UAE DIRHAM 28.2 28.45
CANADIAN DOLLAR 78.75 79
EURO 116.5 116.75
JAPANESE YEN 0.81 0.82

MORE RATES

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COVER STORY
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WILL THE LOW INTEREST RATES SUPPORT THE PRIVATE SECTOR?
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Current benchmark interest rate at 7 percent is the lowest in 42 years in Pakistan. Last month, the central bank kept its policy rate unchanged at after lowering its rate by 100 bps to 7 percent as it was in May. The cut in interest rates would only benefit the economy if the initiative is to support the private sector, otherwise the governmentís excessive borrowing from the banking system will continue to fuel inflation.
Present government led by Prime Minister Nawaz Sharif borrowed Rs1.4 trillion from scheduled banks in the last fiscal year 2014-15, while the private sector credit off-take fell by 44 percent over the preceding year, according to the State Bank of Pakistan (SBP). The private sector credit off-take shrank to Rs208.7 billion in 2014-15 from Rs371 billion in the previous year, despite low oil prices and 300 basis points cut in interest rate......

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COVER STORY
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TIME TO REKINDLE BALOCHISTANíS TOURISM INDUSTRY
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With the development of Gwadar port and the implementation of mega projects of worth $47 billion under China-Pakistan Economic Corridor (CPEC) plan, Balochistan has the attraction of international attention. The province can emerge as prime focus of interest of foreign tourists for its colossal potential in tourism sector. Tourism has been the fastest growing industry in the last decade, as disposable incomes grow throughout the world. The rapid expansion of tourism industry has brought economic benefits to many contemporary societies. Pakistan can earn millions of rupees in terms of foreign exchange by developing tourism industry in Balochistan. Infrastructure, organization and management are the key areas relating to the development of tourism in the province......

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31July15 14Aug15 21Aug15
NASDAQ

5,128.79

5,042.18

4,877.49

H.SENG

24,624.87

23,991.03

22,318.21

SENSEX

28,081.19

28,067.31

27,222.46

NIKKEI

20,585.24

20,519.45

19,453.00

CAC-40

5,072.36

4,956.47

4,783.55

DAX

11,277.74

10,985.14

10,432.19

FTSE

6,672.20

6,550.74

6,367.89

S&P

2,108.63

2,089.03

2,035.73

DJIA

17,745.98

17,454.25

16,990.69

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As On Aug 21, 2015

TENOR

BID

OFFER

1 Week

6.44

6.94

2 Week

6.47

6.97

1 Month

6.50

7.00

3 Month

6.76

7.01

6 Month

6.82

7.07

9 Month

6.84

7.34

1 Year

6.86

7.36

2 Year

7.03

7.53

3 Year

7.19

7.69

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RESEARCH CORNER
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INFLATION RATE TO GO HIGH
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The Government of Pakistan has predicted that the inflation rate in the country might go high as Pakistan and IMF (International Monetary Fund) completed the 8th review for the release of over $502 million to Pakistan. The IMF accepted to grant 2-waiver on situations related to budget deficit and borrowing from SBP for end-June 2015.
Pakistan and IMF have fruitfully completed dialogues on the 8th review under the 3-year EFF (extended fund facility) program for a worth of $6.2 billion. This would lead to the release of the 9th tranche of over $500 million...

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BUSINESS QUOTATIONS
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The price of success is hard work, dedication to the job at hand, and the determination that whether we win or lose, we have applied the best of ourselves to the task at hand.
VINCE LOMBARDI
If you believe in yourself and have dedication and pride - and never quit, you'll be a winner. The price of victory is high but so are the rewards.
PAUL BRYANT
Responsibility is the price of freedom.
ELBERT HUBBARD
The individual has always had to struggle to keep from being overwhelmed by the tribe. If you try it, you will be lonely often, and sometimes frightened. But no price is too high to pay for the privilege of owning yourself.
FRIEDRICH NIETZSCHE
Let every nation know, whether it wishes us well or ill, that we shall pay any price, bear any burden, meet any hardship, support any friend, oppose any foe to assure the survival and the success of liberty.
JOHN F. KENNEDY
Leaders aren't born they are made. And they are made just like anything else, through hard work. And that's the price we'll have to pay to achieve that goal, or any goal.
VINCE LOMBARDI
Every positive value has its price in negative terms... the genius of Einstein leads to Hiroshima.
PABLO PICASSO
Price is what you pay. Value is what you get.
WARREN BUFFETT

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COVER STORY
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BANKING SECTOR REVIEW

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The banking sector through CY13 faced tough challenges with external factors including law and order situation, political uncertainty, strikes causing closure of bank branches in distressed areas to name a few. State Bank of Pakistan require banks to have minimum capital of PKR 10 billion by December 2014, which will be a challenge for banks below the required threshold forcing another round of mergers and acquisitions.

The CAR for the banking industry was 14.9 percent in CY13 as compared to 15.6 percent as on CY12. ADR for the banking industry was 48.6 percent in CY13 as compared to 52.6 percent as on December CY12. Despite facing the above challenges, banks have done well as doing business. Banks in 2013 were not aggressive with their lending strategy.........

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CURRENCY CONVERTER
(Open Market)

 EURO:

 US DOLLARS:

 UK POUNDS:

 Japanese YEN:

 SAUDI RIYAL:

 UAE DIRHAM:

 KUWAITI DINAR:

 CANADIAN DOLLARS:

 PAKISTANI RUPEES:

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THIS WEEK TOP STORIES

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CAPITAL MARKET
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STOCK WATCH
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The Karachi Stock Exchange remained in bearish mode in all the five sessions of week shedding 1418 points to close on Friday at 34,519.77. Last Thursday it closed at 35,937.33. The prolonged bearish rally dropped KSE-100 Index by 3.94% WoW.
Oil sector proving to be a major reason for the lackluster performance in the last week continued to haunt the investors when the market opened on Monday. Institutional profit taking in the index heavy weight oil scrip made the volatile bourse bearish. Profit taking was seen in stocks like OGDCL, HBL, PPL and MCB Bank......

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