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Dec 11 - 17, 2000

SBP injects Rs10.3bn

Money market remains tight as monetary targets tagged with the $596 million IMF loan make it difficult for the State Bank to ease off an ongoing liquidity crunch. But if the SBP is able to get some leeway from the IMF for which efforts are under way then it may contain the liquidity crisis to some extent.

The SBP injected Rs 10.30 billion in the inter-bank market on Thursday but the injection had a little impact on the short term lending rates.

Bankers said banks were so much short of liquidity that SBP received no bids for outright or repo sale of treasury bills at its open market operation. But it attracted Rs 15.67 billion worth of offers for purchase of treasury bills of two weeks to maturity: SBP accepted offers worth Rs 10.3 billion at 11 per cent and rejected the rest.

Bankers said the modest injection helped banks to square their daily positions and no major discounting from SBP was reported.

"But it had a little impact on lending rates structure," said head of a foreign bank's treasury. He said overnight repo rates opened at 12.95 per cent and fell to 11.0-11.5 per cent on news of the OMO. "But the rate shot up again to 12.50 per cent towards the end of the day."

The inter-bank money market has been short of liquidity for a couple of months as an expansionary monetary policy was replaced by a tight policy in late September.

For the past few weeks banks have been discounting Rs 7-10 billion daily to square their books. On October 4, the SBP had also raised the cash reserves requirement for the banks from five to seven per cent thereby sucking in about Rs 24 billion from the market. The move came as part of an overall tight monetary policy put in place to stabilize the rupee that shed more than 11 per cent of its value between July and October.

Corporate profits, dividends improve

A total of 185 companies, which measured to nearly 90 per cent of the 206 listed companies that had unveiled results until end-October, posted profit for the financial year 2000.

In contrast, 425 companies or 63 per cent of the 670 listed companies had reported profit last year, the Karachi Stock Exchange Annual Report released on Monday, showed. The report indicated that the figures for 1999 had been updated upto the previous month.

Against 248 companies who had made losses last year and 325 companies the year before, the number of loss making companies diminished to only 21 during the year 2000.

While the corporate profitability is seen to have visibly improved during the latest year, the more delightful aspect is the huge increase in the number of companies that declared dividends for their shareholders.

All except 18 (9 per cent) of the profitable 185 companies announced dividends this year; last year 95 companies and 113 companies in 1998 though profitable, had opted to skip dividends.

Paid-up capital for banks raised

The State Bank (SBP) has raised the required minimum paid-up capital of banks from Rs500 million to Rs1 billion and has asked them to raise their paid-up capital to the required level by January 1, 2003.

An SBP circular (BSD 31) issued to all banks on Wednesday said banks are required to enhance their paid-up capital net of losses to Rs750 million on January 1, 2002 and to Rs1 billion on January 1, 2003.

The circular says the minimum paid-up capital has been raised to facilitate the banks and financial institutions to strengthen their competitive ability, both domestically and internationally.

NBP to improve its retail banking

National Bank of Pakistan (NBP) has decided to improve and restructure its retail banking in order to provide better services to its five million customers.

This was stated by the President NBP, Syed Ali Raza in a meeting with members of the Federation of Pakistan Chambers of Commerce and Industry (FPCCI) at an Iftar party on Thursday.

"It is a criminal injustice that we do not have any authentic retail banking," he said attributing this to non-availability of technology.

SBP to liberalize forex regime

The State Bank will begin to liberalize the foreign exchange regime in second half of current fiscal, that may bring some volatility in the exchange rate and may lead to countervailing measures, a tight monetary policy despite a weak economic growth, to stabilize the rupee.

As it is, the government has lowered its target of economic growth for this fiscal to 4.5 per cent from 4.8 per cent last year with simultaneous estimated rise in inflation rate from 3.6 per cent to six per cent. The strategy for economic growth would take a back seat in the face of IMF-induced pursuit of illusive fiscal and exchange rate stability.

New DSCs

The government will offer floating returns on new defence saving certificates (DSCs) from next month and on all other instruments of national saving schemes from July 1, 2001. It will also withdraw the tax exemption from all instruments of NSS from next fiscal year.

The decision is part of the financial sector reforms that the government is supposed to follow under the agreement signed with the IMF for securing a $596 million standby loan.

SHYDO to be privatized

The provincial public sector Sarhad Hydel Development Organization (SHYDO) would privatize its all small hydel power stations due to incurring losses, official sources told on Monday.

There are over 10 small hydel power stations in Malakand and Hazara divisions, which the SHYDO would offer to the private sector.

These small power generation stations, with necessary distribution system, were incurring huge financial losses forcing the SHYDO to dispose them of, said the sources.