National Savings 222 (2)

8/10/2019 National Savings 222 (2)

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NATIONAL SAVINGS

(COMPARISON OF BANKS AND

SAVINGS CENTERS)

Ayesha Farooq

8 29 2013


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National Savings (Comparative analysis of banks and savings centers) Page 2

Submitted to:

Sir Fida Hussain Bukhari

Submitted by:

Ayeshe Farooq (M09BBA020)

BBA (Hons.)

(Banking and Finance)

Topic:

NATIONAL SAVINGS (COMPARISON

OF BANKS AND SAVINGS CENTERS)


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ACKNOLEDGEMENTI am grateful to my supervisor sir Fida Hussain Bukhari for his attention and

guidance throughout the project work. Without his guidance and suggestions, it

would have been very difficult for me to complete this project.

Furthermore, I would like to thank my family and friends for all the love, support

and understanding they gave me during the time of writing this project.


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Executive summary

INTRODUCTIONNational savings means Total saving by all sectors of the economy: personal

saving, business saving (corporate after-tax profits not paid as dividends), andgovernment saving (the budget surplus or deficit). National saving represents all

income not consumed, publicly or privately, during a given period. In my research

I will compare the contribution of the banks and national savings centers towards

national savings .whether banks contributed more in national savings or savings

centers. I will do research with in the time series of years 2003 to 2013.


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I will do the past data analysis.

SIGNIFICANCE OF THE STUDY:

Source of national savings is private savings less budget deficit. And use of

national savings is equal to domestic investment less investment finance by

borrowings from abroad.in this context high national saving will raise future living

standards whether it finances investment directly or reduces international

borrowing. Because not or less national savings will reduce the domestic

investment and ultimately burden of paying the interest and dividend on foreign

borrowings. It is very important to find the ways to increase the national savings

.and savings is mobilized by financial institutions like banks savings centers, DFIs

and NBFC. By considering its importance we are going to analysis the roll of banks

and savings centers towards national savings.

OBJECTIVE:

The purpose of this study is to examine the roll of banks and savings centers in

national savings.

METHODOLOGY:In this research topic quantitative technique is used. Because I have gathered the

data form financial statements of different banks and national saving centers and

reports of state bank of Pakistan. I study state bank of Pakistan reports, reports of

IMF, Pakistan economic surveys, central directorate of national savings reports.

All data is taken from internet.

NATIONAL SAVING:For a country, saving is defined in a similar manner: by subtracting from a

countrys economy what is consumed. We subtract govt. purchases of goods and

services in addition to consumer purchases(S=Y-C-G).The major component of


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national saving is private saving (the sum of all savings by individuals in economy).

Some people save a lot, some do not save al all, and some are dissaving-that is

they have negative saving. For example: when people retire they usually consume

a lot more than their income they are dissaving, when people are middle-aged,

their income is usually greater than their consumption they are saving. Most

young people either save very little or, if they are able to borrow, they dis-save.

We define private saving using the symbol T for taxes as

Private saving=Y-C-T. (Weerapana-page 528-2008)

The Components of Aggregate Saving

For this purpose it is helpful to introduce the concept of the Gross Domestic

Product (or GDP), and some elementary associated national accounting

relationships. The GDP is simply a measure of the country's aggregate rate of

production of final goods and services over a specified period. (It is from changes

in GDP that we calculate the national rate of economic growth that is so often

cited by politicians). The millions of commodities included in the GDP may be

classified in various ways. A widely used system of classification distinguishes

between consumption goods and services, C (which includes such things as food,

clothing, cars, refrigerators and haircuts purchased by households); private sector

investment goods, I (which includes such things as plant and equipment and

inventories purchased by the business sector, as well as residential housing

purchased by households); goods and services purchased by the government

sector, G; and net exports, NX (the difference between exports and imports of

goods and services). We may consider net exports a proxy for the balance of

current account in the balance of payments. On this basis, then, we can

represent the (real) GDP for any period as a sum of these components:(production =income)

1.

GDP = C + I + G + NX


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The process of production generates not only a flow of outputs of goods, but also

a flow of incomes to those participating in the process. Since, in general, every

dollar of production generates a dollar of income, it follows that the real GDP of a

country reflects a corresponding flow of aggregate real income in that country.

Thus aggregate output and income are essentially equivalent measures of

aggregate economic activity. Leaving aside some refinement of detail associated

with international transactions, all of the income generated in any period is

attributable to the household sector, since the owners of firms (whose income

takes the form of profits) are of course themselves also part of that sector. The

incomes received by households may be categorized into the part that they spend

on consumption goods, the part that they save, and the part that they are

required to pay in taxes. Thus aggregate income may be represented as a sum of

consumption (C), saving (S) and taxation (T). Bearing in mind that we can

represent aggregate income by GDP, we can summaries the components of

income as:

2. GDP = C + S + T

Now we may combine our definitions of aggregate output and aggregate income

in equations (1) and (2), to get:

3.

C + I + G + NX = C + S + T

This may be rearranged as investment.

4.

I = S - (G - T)NX

For it defines, in the three terms on the right hand side, the sources of saving

from which aggregate investment can be financed. The first is domestic private

sector saving, S (that is, saving by households and business enterprises). The

second is public sector saving, represented by the government budget deficit, or

the difference between government expenditure and tax revenue, (G-T). The third

source of saving is the foreign sector. By the logic of our international economic

relationships any net borrowing from the rest of the world implies a


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measures M0, M1 and a broader aggregate M2. The M2 is composed of currency

in circulation, other deposits with SBP, demand deposits, time deposits and

Resident Foreign Currency Deposits (RFCDs) of the scheduled banks. A review of

financial assets indicates that a wide range of financial instruments such as

liabilities of non-bank financial institutions, NSS instruments etc., having similar

characteristics like time deposits are potential candidates to be considered for

inclusion in monetary aggregates. Moreover, financial landscape of the country

has undergone significant changes over the past one and a half decade. A number

of new financial instruments have emerged that calls for both to reconsider the

composition of the existing aggregates and define higher order monetary

aggregates.

CENTRAL DIRECTORATE OF

NATIONAL SAVINGS (CDNS):

In Pakistan, scheduled banks, DFIs, some NBFCs and central directorate of

national savings (CDNS) are the various types of financial institutions which

mobilize savings from the economy but with altogether different objectives.

While banks and NBFIs serve as financial intermediaries that accept deposits and

channelize them to lending activities, CDNS promotes domestic savings by

providing access to different types of savings instruments, with the objective of

providing non-bank financing for the governments budget deficit. These

institutions operate as direct competitors in mobilizing financial savings.

BRIEF HISTORY:The history of the national savings organization in Pakistan dates back to 1873

when the government savings banks act, 1873 was promulgated. Since the

inception of the national savings organization, this platform has largely been

used by the government to mobilize funds to finance the budget deficit. During


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the First World War, the British government used this channel to raise funds to

meet war related expenditures. Since acquiring independence in 1947, this

organization remained operational in Pakistan in various forms. In august 1960,

the CDNS was given the status of an attached department of the ministry of

finance and made responsible for all policy matters and execution of various

national savings schemes (NSS). The present structure of CDNS was set up in early

1972 under the ministry of finance. So far, CDNS has not only remained successful

in promoting financial savings in the economy but has also generated requisite

funds for the government to finance the budgetary deficit. National savings

schemes (NSS) offered by CDNS are sold through a network of 367 national

savings centers all over the country, controlled by 12 regional directorate of

national savings(RDNS).

NSS FEATURES AND MOBILIZATION TRENDS:

CDNS offers various non-tradable, long-term bonds, savings certificates and

schemes which meet the savings and investment needs of various eligible

investors, particularly the fixed income group. These savings instruments have

different maturity profile, ranging from 3 years to 10 years, with varying interest

rates. The government also launched the firstever listed, scrip less and tradable

national savings bond (NSB) on January 11, 2010 with maturities of 3, 5 and 10years.

PROFILE OF SELECTED NSS INSTRUMENTS:

Features DSCs SSCs RICs BSCs PBA

Launched in 1966 1990 1993 2003 2003

Maturity

period

10 years 3 years 5 years 10 years 10 years

Minimum

holding

period

1 month 1 month 1 month 1 month 1 month

Early

encashment

No profit is

payable if

No profit is

payable if

0.5% to 2

% of face

0.25 % to

1 % of

0.25 % to

1 % o


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penalty encashment

before

completion of

each year

encashment

before

completion of

each period of

six months

value face value face value

Profit

payments

Bullet bonds Bi-annually Monthly Monthly Monthly

Zakat Compulsory compulsory exempted exempted exempted

Withholdin

g tax

@10%* @10%* @10% exempted exempted

Minimum

investment

amount

Rs.500 Rs.500 Rs.50,000 Rs.5,000 Rs.10,000

Maximum

investment

limit

No limit No limit No limit Rs.3,000,0

00

Rs.3,000,0

00

Institutiona

l

investment

Allowed ** Allowed** Allowed** Not

allowed^

Not

allowed #

*Withholding tax is exempted if total investment does not exceed Rs

150, 000

** Excluding banks and insurance companies

^only widows and senior citizen aged 60 years and above are allowed to invest in thi

instrument

#only pensioners of federal government, provincial government, government of AzaJammu and Kashmir, armed forces, semi-government and autonomous bodies ar

allowed to invest


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As mentioned above, the most pertinent objective of establishing the central

directorate of national saving (CDNS) was to mobilize private savings to finance

the budget deficit. However, the highly attractive rates of return on these

schemes made them a popular avenue of investment not only for the general

public but also for corporate investors. The popularity of NSS instrument rose to

the extent that every year the government received a net inflow of private funds

from NSS, and serviced the returns, in addition to repaying the principal, from

gross receipts. As a result the government did not need to separately allocate

funds in the budget to service these schemes or to repay the principal when

required. Subsequent to FY04 however, a change in this trend was observed,

especially during FY04, when for once total repayments could not be paid through

the gross sale receipts of NSS instruments. One of the main reasons for this was

the ban on institutional investments in NSS instruments in March 2000, which

substantially reduced their gross sales. Another major contributory reason was

the linking of the NSS rates with the rates on Pakistan investment bonds (PIBs), a

market-based instrument in FY00.consequently, the sharp decline in market

interest rates during fy03 and fy04 impacted the rates of return on schemes as

well, resulting in a diversion of private savings towards other investment options.

In addition, banks were also prohibited from selling NSS instruments from June

15, 2003 in order to discourage arbitrage opportunities due to the wide interestrate differential between NSS rates and lending rates on loan secured by these

instruments. As a result, the share of NSS in total domestic debt, which had been

raising untilFY03, started to decline. However the introduction of pensioners

benefit accounts (PBAs) and behbood saving certificates (BSCs) during FY03 and

FY04 respectively, with returns significantly higher than other NSS instruments,

attracted many customers from among the people eligible to invest in these

schemes. In a rising interest rate environment, as seen from FY05 onwards with a

brief respite in between, the rates of return on NSS instruments have alsoincreased, giving rise to positive inflows. The removal of the ban on institutional

investment (expect banks and insurance companies) also helped mobilize savings

from October 2006 onwards.


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SHARES OF VARIOUS NSS INSTRUMENTS IN OUTSTANDING NSS

STOCK:

The shares of each type of instrument in total outstanding stock are shone below.

Items FY06 FY07 FY08 FY09 FY10

1. certificates 73.6 72.1 71.1 74.4 74.1

Defense

saving

certificates

33.6

30.7

27.9 20.2 15.4

Special

saving

certificates

15.9 15.6 15.7 22.7 24.1

Regular

income

certificates

7.9 5.5 5.0 7.2 9.3

Behbood

saving

certificates

16.2 20.0 22.4 24.2 25.2

Others 0.1 0.1 0.1 0.0 0.0

2. accounts 13.7 16.2 18.1 17.2 18.3

3. others 12.7 11.8 10.7 8.4 7.6

Total (1+2+3) 100 100 100 100 100

NSS stock

(million

rupees)

880 940 1,020 1,271 1,456

Source:S&DWH

Above the table shows that NSS rates of return, indicating that CDNS invariablyoffers higher rates of returns on various NSS schemes as compared to the

weighted average rates on bank deposits. In December FY00, with the objective of

eliminating market distortion and moving to a market mechanism for the

determination of rates, the rates of returns on NSS instruments were linked with

the cut-off rates on Pakistan investment bonds. Following the declining trend in


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PIB rates from FY02-FY04,rates of return on NSS instruments started declining and

reached 7.1 %(average)in FY05, from 12.4% in FY00. From end FY08 onwards,

there have been several upwards revisions in NSS rates in line with the changes in

rates on PIBs, driven by monetary tightening by the central bank. Consequently,

NSS recorded historical net inflows of Rs. 250.1 billion in FY09.however, a fall in

PIB rates in the brief period of monetary easing in 2009, led to a reduction in NSS

rates by 283-300 bps. Consequently during FY10, net flows of Rs.185.7 into NSS

were below the targeted amount of Rs.231 billion. Subsequently to the reversal in

the monetary stance from FY11 onwards, the rate of profit on these schemes

were also enhanced. Although NSS instruments do not provide inflation adjusted

returns. Nevertheless, their relatively higher rates makes them attractive

investment instrument. Given growing inflationary pressure in FY10, the real rate

of return on both NSS instruments and bank deposits are flying around the

negative zone. Notably ,NSS instruments are protected to market fluctuations in

interest rates due to their non-tradable nature .Another prominent feature of

these instrument is their availability on tap, and the embedded put option,

which enables the investor to encash his investment and reinvest at a higher rate

each time there is an upward revision in the rates of returns. The early

encashment facility without any cash penalty reinforces this particular behavior.

These various features of NSS instruments tend to create distortions in thefinancial system.


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RATES OF PROFITS ON NATIONAL SAVING SCHEMES:

Schemes 200

7

200

8

200

9

1July

2010

1

Oct.

2011

1

Oct.

2012

12 Oct.

2013

1Jan

1. Saving accounts

a.

With check facility

b.

Without check

facility

8

8.50

8

8.50

8

8.50

6.85

6.85

6.65

6.65

2. khas deposit accounts

or certificates 3 years

(rollover)

a.

Three

years(compound

rate)

13.4

2

13.42 13.4

2

13.42 13.42

3.Mahana amdani

accounts

a.

Compound rate on

maturity

10.4

1

10.41 10.4

1

10.41 10.41

4.Defence saving

certificates

a.

10 years

(compound rates)

12.1

5

12.60 12.6

8

11.04 10.84

5.national deposit

certificates/accounts

a.

1 year (rollover)

13 13 13 13 13

6.special saving

certificates/accounts

a. Registered (last

period of complete

six month)

12.

8%

15.2

% 12

14

12.80

14

13

14

10.50

14

10.30

14


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b. Bearer (last 2

period of complete

six month)

7.regular income

certificates

13.

3%

15% 12 12.36 12.6

0

10.56 10.37

8. pensioners benefit

accounts

15

%

16.8

%

14.1

6

14.64 14.4

0

12.96 12.72

9. behbood saving

certificate

15

%

16.8

%

14.1

6

14.64 14.4

0

12.96 12.72

Source: central directorate of national savings.

TROUBLE AT NATIONAL SAVINGSCENTERS:

By Afshan Subohi

September 29th, 2008

For commoners, the government schemes have proved to be an attractive avenue

of investment because of steady returns and minimal risk. For government, it has

been a most dependable, comparatively cheaper mode of domestic borrowing

and the least damaging. Leaning on the central bank to bridge the government

resource gap create more imperfections. When the government needs to borrow

and the citizens are inclined to invest in its savings schemes, the institution

handling the business should have been a model financial organization. The

Central Directorate of National Savings is far from being ideal even if the issue of

rates being offered is set aside. It (CDNS) is among the most neglected

organizations working under the all-powerful and seemingly most mixed up

ministry of finance, said a retired CDNS employee. Last year we surpassed the

initial target of Rs43 billion that was later revised to Rs80 billion. The CDNS

achieved net collection of Rs87 billion during the year. This year the government

increased the target sharply to Rs150 billion. We are trying to meet the target by

introducing new short- term schemes despite multiple organisational issues,
http://archives.dawn.com/author?post_author=By%20Afshan%20Subohihttp://archives.dawn.com/author?post_author=By%20Afshan%20Subohi


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Zafar Sheikh, Director General CDNS told Dawn from Islamabad. Some senior

members of the organization and staff of branches visited in Karachi gave out a

long list of pending problems faced by the CDNS staff. Most staffers are on the

edge. Had there been jobs in the market each one of us would have left long time

back. We are made to work like donkeys under immense stress. There are at least

ten people prodding while we make entries in giant registers and calculate profits

for clients, said a disgruntled officer at a branch. The average strength of staff at

one branch is seven who handle up to 400 cases in busy branches. Many staffers

of CDNS blamed their officers for their dilemma. When hundreds of millions of

rupees are handled manually there is possibility of grave mistakes. Currently

CDNS is not exposed to external audits. It is humanly impossible to manage the

current size of account holders without automation, said a regional head who

wished not to be named. In all there are twelve regions and several dozen

branches all over the country. The staff strength of the organization has been

frozen for the last 25 years. Over this period the total funds handled multiplied

many times from Rs25-30 billion back in 1984; today total stocks of CDNS stand at

1.157 trillion. Not only this, there are various new schemes with periodical returns

that has further increased the workload on our staff, Afzal Tahir Bajwa, Director

Schemes told this scribe from Islamabad. A half-hearted attempt was made a few

years back and computer stations were installed in some branches in the name ofgradually introducing automation. The system failed. It was a non-starter from

the word go a staffer at a branch said. The seniors in Islamabad and Karachi

believe that nothing less than creation of a full-fledged IT department with a

capacity to develop suitable software should even be attempted. Dr Zafar said

that some headway has been made in this regard and a director IT has been

recruited to start with. The problems at the CDNS cannot be resolved by the

ministry of finance. There is a need for drastic restructuring and creation of a self-

sustaining autonomous CDNS, the same suggestion was repeated at almost alltiers of the organization. In this regard, the ground work was being done but the

summary was shot down all three times by what many believe officers of the

ministry of finance in collusion with all powerful bankers lobby who see the

institution as a challenging competitor. They are control freaks. Even when it is

already beyond their control they do not let it go. As for bankers, they like


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working in a tilted market loaded against depositors. More than interest it is their

psyche, commented an officer of Planning Commission reached for comment.

CONCLUSION:While NSS ply an important role in mobilizing financial savings in the economy,

the outstanding stock of NSS instruments along with the unique characteristics of

these schemes create distortion in the financial sector. It is suggested that CDNS

is restructured in such a manner that it can continue to play its vital role in

mobilizing financial savings in the economy without creating significant

distortions in financial sector. To meet this objective , NSS instruments need to be

integrated into mainstream capital market by making them tradable(as suggested

by the SECP in its report ,and by withdrawing the implicit put option, which is a

potential source of liquidity problems for the government . it is also important to

upgrade CDNS infrastructure by utilizing IT services. Giving the huge size of

investment in NSS, a restructured and well- equipped CDNS can be strategically

used to promote outreach of financial services to remote areas.

CONTRIBUTION OF BANKS

IN NATIONAL SAVINGS:

BANKING SECTOR OF PAKISTAN:

Economic growth of a country improves because of good financial institutions.

Financial institutions available in Pakistan are; commercial banks, specialized

banks, national savings schemes, insurance companies, development finance

institutions, investment banks, stock exchanges, corporate brokerage houses,

leasing companies, discount houses, microfinance institutions and Islamic banks.

They offer several products and services. In 1971, developing commercial banks in

the private sector and creating development institutions was major focus of


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Government. The private sector development closed during the period 1971-

1990, Government policy of nationalization. During this period, the banking sector

came under the Governments control.The current position of Pakistans financial

sector is the result of several policy shifts and developments. Like many other

developing countries, Pakistan also undertook the process of financial

restructuring through reforms in early 1990s to establish a more market-based

system of financial intermediation and Government financing, conduct the

monetary policy more efficiently through greater reliance on indirect instruments

and increase the contribution to the rapid development of the stock markets.

During the last few years, financial markets and institutions in Pakistan have

witnessed significant changes. Since 2000, more than 40 transactions of mergers

and acquisitions have been taken place within banks and between banks and non-

bank finance companies. Also many banks/development financial institutions

have expanded their activities into the areas where the banks previously were

either not allowed or not interested. These include insurance, asset management,

brokerage, leasing and other non-banking finance services essentially through

separate entities. Along with financial services, various groups that control

different banks have also stakes in non-financial/real sector of economy. In the

World Economic Forum's Financial Development Report 2010, Pakistan has

been ranked 54out of 57 countries. State Bank of Pakistan (the central bank of thecountry) is the sole supervisory and regulatory authority of Commercial Banks,

Islamic Commercial Bank, Development Financial Institutions (DFIs), Micro

Finance Banks and foreign exchange companies in Pakistan. The remaining

financial institutions are monitored by other authorities, such as the Securities

and Exchange Commission. Unpredicted floods and rains in the country worsened

the effects of an already delicate condition of banking sector as the non-

performing loans (NPLs) of the banking system grew at a faster rate during 2010.

The asset base of the system also contracted over the year. The macro-environment is already questionable for the last two years or so. A host of factors

i.e. slackened economic activities; power shortages, security concerns, and higher

inflation have squeezed profit margins as well as the repayment capacity of

borrowers. Moreover, the fiscal situation also deteriorated and the public sector

borrowed heavily from banks for budgetary support, financing needs of Public


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Sector Enterprises (PSEs) and commodity operations. 4.1 percent was the GDP

growth for 2009. However, the increasing inflation is affecting the current

economic situation. The economic condition has further worsened by

unpredictable floods and seasonal rains. GDP growth for 2010 and 2011 is

expected to remain 2 to 3 percent against the target of 4.5 percent and inflation is

expected to remain 13.5 to 14.5 percent due to these problems. However,

internationally IMF in its recent World Economic Outlook of Oct-2010 has

highlighted an increasing growth than projected growth during first half of 2010.

Other than this the global activity will expand by 4.8 percent during 2010 (up from

4.6 percent forecast of Jul-2010), it shows that the economy is facing a number of

unresolved challenges and downside risks continue to predominate. After the

independence Pakistani banking sector have face drastic changes. It faced several

shortages of resources and uncertainty due political and economic instability.

Lack of trained human resource and professionals resulted into poor quality of

products and services. State Bank of Pakistan was formed as a central bank on

July 1, 1948 to control the financial sector. Subsequent amendments were made

to extend the control and functions of SBP through State Bank of Pakistan Act

1956. SBP introduced private sector to establish banks and financial institutions in

the country. During the period of 1050s and 1960s unhealthy and unlawful

competition resulted due to bribe and corruption. In 1974, all the existing bankswere nationalized by the Government. Their performance worsened due to

government protection to employees, resulting into the provision of inferior

products and poor services. It also discouraged the private investors and foreign

financial institutions. The bad condition nationalized banks led to privatization of

banking sector in early 1990s. Today, in the growth of the countrys economy

banking sector plays an important role. According to the State Bank of Pakistan

Act, the banking system of Pakistan is a two-tier system including the State Bank

of Pakistan (SBP), commercial banks, specialized banks, Development FinanceInstitutions (DFIs), Microfinance banks and Islamic banks. As of June 2010, the

banking sector comprised 36 commercial banks (including 25 local private banks,

4 public sector commercial banks and 7 foreign banks) and 4 specialized banks

with a total number of 9,087 branches throughout the country. Among the banks,

there are 6 fully fledged Islamic banks as at end of June 2010.


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Pakistani banks provide cash services to individuals and companies, including

correspondent-banking. Banks also offer domestic and cross-border remittance

services to the population. Also, they provide depository services. Sector reforms

have improved the financial landscape of the country, which was initiated in the

early 1990s - into an efficient, sound and strong banking system. The reforms

have resulted in an efficient and competitive financial system. State owned banks

have now become privatized. The legislative framework and the State Bank of

Pakistans supervisory capacity have been improved substantially. As a result, the

financial sector has also improved. Today, almost 80 percent of the banking assets

are held by the private sector banks and the privatization of nationalized

commercial banks has removed the culture of bureaucracy and formed a culture

of professionalism. Technology in banking sector has also revolutionized the

customer services and access on-line banking, Internet banking, ATMs, mobile

phone banking/ branchless banking and other modes of delivery have made the

transactions easier for the customers. The Credit Cards, Debit Cards, Smart Cards

etc. business has also expanded. The foreign exchange market that was highly

regulated through a system of direct exchange controls over suppliers and users

of foreign exchange has been liberalized and all purchases and sales take place

through an active and vibrant inter-bank exchange market. All restrictions have

been removed with full current account convertibility and partial capital accountconvertibility.

Current trends in Pakistans banking

sector:

Pakistan faced a difficult macro environment since 2007. This was not due to

global recession but due to a series of factors that grew to destabilize the

country's macroeconomic condition. Due to this destabilization IMF in 2008

started its stabilization program for Pakistan. The global recession had an indirect

impact on the country. As mentioned above the global recession did not have a

major impact due to the recession but it had a major impact on Pakistans

exports. Major export partners were facing severe liquidity and trade was greatly


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hampered, on the other hand foreign investments in the country also reduced.

Other factors such as power shortages reduced the overall industrial capacity of

the country and due to increased cost of production the prices rose, the long

standing issue of inter-corporate circular debt, considerable decline in foreign

direct investment due to weak economic fundamentals, high inflation, security

concerns and above all, the high increase in fiscal deficit which broke all previous

records in the country's economic history, major environmental catastrophe in

the form of floods, all these factors contributed in weakening Pakistans economic

condition. The leading evidence of these various pressures on domestic firms and

industries is that their loan repayment capacity has been compromised, with a

consequent rise of non-performing loans (NPLs) on the banks balance sheets.

Furthermore, due to the deteriorated fiscal situation, public sector borrowed

heavily from banks for budgetary support, financing needs of Public sector

Enterprises (PSEs) and commodity operations. Accordingly, there has been a shift

in banks asset-mix towards credit to the public sector along with increased

performance for top rated corporations over Small and Medium Enterprises

(SMEs) and consumer that are generally less resilient to economic slowdown and

fragility in operating environment. Nevertheless, it has tested the resilience of the

banking sector in that banks have been forced to build emergency reserves and

provide for infected assets. Such requirements have been affecting their dividendpayments and consequently putting pressure on their share prices.

Assets structure of banking system:

In September 2010, the total assets of the banking system reached Rs 6.6 trillion.

The increase in the asset base has been a big achievement, especially given the

growth of only 8.8 percent in 2008.However; a key characteristic of this growth

has been the significant increase of 60 percent in investments in 2008 and then alowered growth of 17% in 2010. Reasons attributed to the rise include factors

such as: Change in banks risk perception due to mounting nonperforming loans

(NPLs) and second Greater borrowing needs of the government from scheduled

banks for budgetary purposes, for settling intercorporate receivables and to

finance commodity operations.


23/50


Market share by size of banks:

In terms of concentration in the banking sector, the share of individual banks

assets in the total asset base continues to decline as the industrys competitive

position gradually improves. A decline in the concentration of large banks is alsoevident from the fact that the market share of the big 5 banks decreased from

63.2 percent in 2000 to 50.4 percent during the year 2010.

Liabilities:

On the liability side, banks deposit base, the biggest source of funding for banks

in Pakistan, grew to reach Rs. 5021 billion during 2010, slightly lower than the

average growth percentage since 2001. Increase in deposits is largely attributed

to monetary expansion on the back of rising Net Domestic Assets (NDA) - due to

substantial government borrowing - and an increase in home remittances, an

important source of bank deposits. Banks on the other hand are also facing a very

strong competition by the NSS (national saving scheme) due to the much higher

return provided by NSS over deposits. As a result, low returns on deposits

continue to hurt deposit growth. The State Bank of Pakistan is struggling to

develop an appropriate response to the issue. (E.g. SBP introduced a minimum

rate of return of 5.0 percent per annum on all categories of savings/PLS savings

deposits with effect from 1st June 2008). However large banks due to their larger

market share and higher economies of scale are striving hard to maintain an

attractive return on deposits to hold on to their age old customers. On the other

hand newer and smaller banks are also coming up with attractive rates of return

and attractive offers to grab new customers. Borrowings from financial

institutions, another key component of liabilities, witnessed a substantial growth,

in sharp contrast to the small growth of 1.7 percent in 2008. In 2010, these

borrowings mainly constituted of borrowings from SBP, and repurchaseagreements in the inter-bank market.

Equity base:

Banks were now required to increase their minimum capital to Rs. 10 billion by

end2010. Notably, banks minimum capital requirement (MCR) was rationalized


24/50


by the SBP in 2010. The MCR was revised in view of the prevalent challenging

economic environment, which had negative implications for banks profitability

and consequently their reserve accumulation.

Date Equity (in billion Rs)

Minimum Paid upCapital(Net of losses)

Dead line by which to be

Increased

2007 544

2008 569 Rs 5 billion 31-12-2008

2009 660 Rs 6 billion 31-12-2009

Sep2010 655 Rs 10 billion 31-12-2010

2011 Rs 15 billion 31-12-2011

2012 Rs 19 billion 31-12-2012

2013 Rs 23 billion 31-12-2013

Source: State Bank of Pakistan

It is worth mentioning that, in order to meet the MCR, banking industry in

Pakistan is currently under a wave of Mergers and Acquisitions (M & As) and

there are on average 3( M & As )per year. The financial liberalization which also

led to a mushroom growth of banks, particularly the financially weak banks -which may cause financial instability prompted the State Bank of Pakistan to

instruct all banks to improve their financial health by increasing the minimum

capital requirement (MCR) from Rs. 10 billion at end-2010 to Rs. 15 billion at end-

2011 and Rs. 23.0 billion by the end of 2013. The MCR requirement for DFIs was

to raise their paid up capital to Rs. 6.0 billion by December 2009. This has forced

banks (and DFIs) either to consolidate further by finding merger partners or exit

the market.


25/50


Risk Assessment:

Credit risk

Credit risk is risk due to uncertainty in counterpartys ability to meet its

obligations. Credit risk is a major problem for Pakistani banking system. Credit risk

increased in 2010 because of unstable economic situation and weaknesses in the

operating environment along with devastations caused by recent unpredictable

floods and rains. As a result, NPLs again grew by 7.4 percent reaching Rs494

billion. Though the decline in advances in third quarter was usual this led to a

significant increase in NPLs. The major factors for decline in overall advances were

the; Unpredictable floods that affected credit operations. Risk-averse policies of

banks for increase in credit risk, especially by the bigger players Due to subdued

economic activity, banks became cautious in their lending business. This is visible

in the shift in their advances-mix from consumer and SME to corporate especially

the top-rated corporations faced a fall in advances, while several others faced a

marginal growth. However, growth by latter groups does not have any significant

impact due to their modest share in the system. Small banks share in advances

increased in the current quarter. In both public and private sector the contraction

of advances took place, mainly due to 6.5 percent decline in commodity financeover the quarter. However the energy sector saw some growth in lending to

public sector corporations. Relative sharper decline in private sector shifted the

mix towards the public sector advances by 20 bps. Despite the overall decline, the

Corporate and Agriculture segments still managed to show some growth in

advances. The performance of both these sectors in terms of share in overall

loans remained relatively stable due to their scale of production, varied activity

and share in GDP. The growth in Agriculture segment was led by a single bank

holding 54 percent of agriculture portfolio various loan segments have showndeclining trends in fresh loan acquisition due to varied reasons. The decline in

commodity finance is cyclical in nature, whereas the depression in SMEs and

Consumer loans resulted from low credit demand, partly due to high interest

rates, high inflation and high degree of banks preference for managing existing

worthy borrowers.


26/50


Interest rate is another important factor of credit risk in the economy. Pakistan's

official interest rate reported in November 2010 was at 14.00 percent. Therefore,

the volatile interest rate alters the cost of borrowing which is linked to the

repayment capacity of the borrowers. In this respect, high government

borrowing, constant fiscal deficits and the rising inflation are largely to be blame

for the lending rates remaining in double figures.

Official Interest/Discount rates in Pakistan (2006-2010)

(In percent)

The following table shows the government as a dominant borrower of the

banking sector.

Trends in deposits:

The deposits base of the banks declined by 4.9 percent from the year 2009 to

2010. The reason for this decline was the mainly the reduction between transfer

of deposits between banks and the deposits by customers also decreased. Further

due to Ramadan and pre Eid there were further borrowing which further reduced

the amount of deposits. But the investments in the national savings continued

constant and slow growth increasing the percentage of banks deposit to 34.5

percent during 2010. Deposits of the banking system posted a strong over-the-

quarter growth of 6.8 percent (YoY 13.5 percent). The banking system has been

facing a strong competition from Central Directorate of National Savings' (CDNS)

schemes in mobilizing deposits but flow of funds to CDNS has somewhat pacified

which helped banks to attract substantial growth in their deposit base.

Borrowings:

Borrowing on the other hand also lowered by 8.4 percent during Sep-10. Averageborrowings as a percentage of total asset lowered to 8.6% in Sep-10 compared to

8.8 percent in the last quarter.


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Profitability:

Profitability is very important for the smooth functioning of the banking sector.

The profitability of the banking system improved over the last year mainly due to

high net interest and non-interest income Profitability of the banking systemposted a gain of a (before tax) Rs 80.3 billion. In line with the increase in the profit

before tax, the profit after tax of the banking sector also posted a small decline

during the year 2010.Prevailing challenging environmental factors and banks

increased preference for low-return, risk-free assets continue to exert pressure

on banks profitability. However, high provisions and increasing administrative

expenses impeded the overall profitability. The profitability, however, varies

across banks. Improvement in ROA for banks with large assets base as opposed to

small sized banks indicates that earning performance of the banking system is

concentrated towards large sized banks with small sized banks under stress.

INVESTMENTS:

the asset mix of the banking system shifted towards the investments due to the

ongoing economic slowdown in economy. The investment portfolio of banks

particularly investments in government papers and bonds of PSEs grew

significantly and took the major share of the increase in banks' asset base.

Conclusion:

The banking sector of Pakistan is growing at a very fast pace. Due to the growth

and profits new banks are coming into the sector and are able to withstand this

difficult operating environment. Due to new entrants the competition is becoming

more intense than ever before. But still the older banks are dominating the

market share. Pakistanis on the other hand have major dislike for the interest

income therefore a large portion of 180 million populations does not use bankingservices. Other than the dislike for banking sector some of the rural/semi-rural

areas are not reached by the banks. According to a world bank study on access to

finance published in 2008 estimated that only 14% of the population in Pakistan

uses banking services.


28/50


Other than low penetration and difficult operating environment, one of the

biggest challenges for Pakistan is increase in the non-performing loans and low

private sector credit demand as high lending rates and weak economy is adversely

affecting the borrowers payment capacity. Undergoing these economic

difficulties banks faced another problem which was the heavy flooding in Pakistan

during August 2010 that caused humanitarian disaster and changed the economic

outlook of the country. Some researchers believe that weak economic growth is

for a short run only.Due to all these challenges, Pakistans banking industry is

rebalancing its assets from advances to investment. Banks elements of credit risks

are clearly visible from their inclination to invest in government securities and

their preference to meet financing needs of the government rather than the

private sector.

WEIGHTED AVERAGE DEPOSIT RATES:

Items Unit 2013

June

2012

Dec

2011

Dec

2010

dec

2009

dec

2008

dec

200

7

dec

2006

dec

200

5

dec

200

4

Dec

2003

dec

Weighte

d

averagedeposit

rate-

fresh

deposit

% 5.11 6.01 7.06 7.41 7.38 8.94 5.81 5.88 4.23 1.78

Weighte

d

average

deposit

rate-

outstandi

ng

deposit

% 5.01 5.43 5.88 5.91 6.14 6.70 4.13 3.66 2.55 1.30 1.42


29/50


National

savings

schemes-

outstandi

ng

amount

Billi

on

Rs.

2395

.1

2,264.

4

1913.

5

TOTAL DEPOSITS OF SCHEDULED BAMKS (STOCKS):

Million Rs.

Source: weekly statement of position which covers domestic operations of banks.

SAVINGS mobilized BY NATIONAL SAVINGS SCHEMES:

(Million Rs.)

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

June

1793,

176

2161,

098

2661,

697

2,999,

895

3,565,

537

3,801,

411

(3801

b)

4325,

139

5,124,

308

(5012

b)

5,874,

689

6,682,

648

7069,1

61

Time

period

DSC RIC SSC Prize

bonds

Others total

2004-

2005

-8,759.1 -

40,663.0

-83,311.9 9,357.0 73,670.3 -49,706.8

2005-

2006

-7,476.2 -

15,329.0

-57,662.1 3,700.2 82,768.0 6,000.9

2006-2007

-5,800.3 -16,991.8

6,965.8 9,007.3 74,470.4 67,651.4

2007-

2008

-4,320.6 -273.4 13,802.9 8,277.1 69,153.5 86,639.5

Target

(90.5b)


30/50


Source: central directorate of national savings

actual

invest(89.5

b)

2008-

2009

-27,441.3 40,094.3 128,469.0 14,650.

0

111,451.5 267,223.5

(267.20 b)

12.5%

2009-

2010

-32,354.8 44,535.0 61,996.1 38,556.

7

112,034.8 224,767.7

Doubt

(225.70 b)

Target

(220b)

2010-2011

9,748.0 46,946.0 43,961.0 41,083.3

93,205.3 234,943.7

2011-

2012

7,297.0 43,971.6 -52,834.1 56,324.

2

133,598.4 188,357.1

(188b)

Target

(146)

Actual (187

b)

2012-2013

29,363.6 34,035.3 42,799.3 48,921.2

179954.9 335,074.3Deposit

mobilize is

(229.5b

july nov)

288.96 b

for feb


31/50


Increase in profit rates on CDNS products to hit banks deposit

growth

December 02, 2008

The move by the government of increasing profit rates on Central Directorate

National Saving (CDNS) products by 170-240 bps to above 18 per cent in a bid to

finance fiscal deficit hunted the banking sector's deposit growth in calendar years

(2008-09) despite offering attractive returns on various deposit schemes by the

banks. Frahan Rizvi, Research Analyst at JS Global assumes 4 pc and 6 pc banks'

deposit growth in 2008 and 2009, respectively, compared with a CAGR of 18% in

the last 5 years (2003-07). The 170-240bs increase in profit rates of NSS schemes

to 15.0-16.8% (excluding DSCs) helped government attract additional depositsand reduce its reliance on SBP borrowings to finance budgetary deficits going

forward. In addition to increase in NSS rates, fiscal deficit figures for 1QFY09,

according to which fiscal deficit reduced considerably to Rs139bn (1% of GDP) as

against fiscal deficit of Rs158bn (1.6% of GDP) in 1QFY08. While these numbers

look encouraging, they are a bit misleading as the reduction in fiscal deficit was

mainly led by a 69% cut in development expenditure to Rs39bn in 1QFY09 as

against expenditure of Rs128bn recorded in 1QFY08.

Corporate sector entry in NSS to hurt

banks deposits

July 03, 2009

The overall deposit growth of the banking sector may remain motionless in this

fiscal as corporate sector has been allowed to invest in National Saving Schemes

(NSS). Therefore with relatively higher returns NSS has the capacity to hurt the

deposit growth of banks. The higher deposit cost pressure for banks is anticipated

to exist due to higher NSS target for FY10, while inter-bank competition is also

expected to persist for deposits on account of prevalent differential between NSS

rates and banks weighted average deposit rates (7.54 per cent) which are


32/50


remained significant. It is mentioned that the profit rates on NSS has been

reduced from 0.5 per cent to 1.9 percent on different schemes. The new rates on

NSS components would be applicable on new deposits to be attracted by the

schemes from July 1, 2009.

Analyzing the impact of NSS profit rates cut on banking sector, the downward

revision complements expectations of monetary easing. However, the

government decision to finance the budget through NSS would call for relatively

higher returns compared to other investment opportunities, such as government

securities for corporate and bank deposit for individuals.

1HFY09, banks assets growth got skewed towards investments as investments

growth of 35 per cent CYTD (Rs349b) while advances grew by a meager 0.2 per

cent (Rs5.6b). The asset growth during the period remained heavily dependent

on SBPs injection which is evident through relatively slow growth of 4.9 per cent

(Rs191b) in deposits during the period, he added.

Considering the slow growth of money supply, we anticipate these trends to

continue in short term, at least till the sizeable foreign inflows materialise, which

are expected in 2QFY10 he projected.

The govt has announced 1QFY10 targets of Rs325b and Rs30b for T-bills and PIBs

respectively, down by 38 per cent and 25 per cent on quarter-on-quarter basis.

However, target for NSS has been increased by 78 per cent to Rs231b for FY10,which indicates higher reliance on NSS for budgetary financing, he added.

Earlier, the Federal government announced amendments in tax regulations for

provisions/bad debts by allowing provisions up to 1 per cent of advances.

Banks deposits up Rs73b

August 21, 2009

The commercial banks showed an encouraging growth in their deposits during

January to March 2009 period. Total deposits of the scheduled banks have

increased to Rs3.874 trillion in March 2009, from Rs 3.801 trillion in December

2008. Despite global and domestic slowdown the banking sector has indicated a

significant growth in deposits that was a good sign for the growth of the financial


33/50


sector in Pakistan. Commercial banks continued to depict growth in their

deposits, assets and also earned an impressive profit in 2009 although the

economy of the country was still experiencing a slowdown .Pakistani commercial

banks have shown resilience and a strong potential to growth. In 2009 the

commercial banks focused on consolidation of their existing business because of

recession but in 2010 the banks started aggressive marketing as economy of the

country moved towards recovery and growth.

Return on NSS, bank deposits still negative: SBP

Dec 16:

Given increasing inflationary pressures the real rate of return on both NSS

instruments and bank deposits are flying around the negative zone, said the State

Bank in a latest detailed report while reviewing financial stability. Economists and

analysts have been critical of this situation as they said the real negative return on

deposits and NSS badly hamper the savings in the economy. Both the State Bank

and the government left the issue unresolved for many years and a never-ending

borrowing habit of the government led to high inflation now crippling the

economy. Despite a better return on National Saving Scheme, which is much

higher than return on bank deposits, the high inflation negated the benefits of

higher return.According to the State Bank`s data given in the report, the overall

return on banks` deposits in the first half of the financial year (FY-10) was 8.6 per

cent, while average return on NSS was 12.5 per cent.In the second half of FY10,

the return on overall banks` deposits fell to just 6 per cent compared to 12.5 per

cent average return on NSS.Despite the attractive rates on NSS the investors get

a negative return, which shows a profound problem of inflation eating up the

entire benefits of saving and investment, said Mohammad Imran, a senior

analyst. The inflation is not the byproduct of banks or the State Bank. It is thegovernment, which relies heavily on borrowing and creates inflation that

ultimately deprives the depositors from real returns, said a senior banker.

He did not explain how banks still earn billions each year, while their depositors

get negative return. The State Bank report shows that the widening fiscal deficit


34/50


attracted massive liquidity in the NSS since the return was increased significantly.

In FY09 there was significant upward revision in NSS rates in the consequences of

growing fiscal deficit, which attracted historic net flows of Rs250.1 billion, said

the SBP. Consequently, share of NSS in total deficit financing rose to 37 per cent,

from 10.3 per cent in FY08. However, by end FY10, the share declined to 20 per

cent with the decline in NSS rates, the report added.

NSS portfolio crossed historic mark: CDNS

December 12, 2010

RECORDER REPORT

The National Saving Scheme (NSS) has witnessed remarkable increase in theinflows during the last three years tenure of democratic government and the total

portfolio has crossed the historic figure of Rs 1,721 billion.

It is baseless that the due to shocked trust on the government, the funds are

being withdrawn from the NSS. In fact, the NSS has witnessed phenomenal

increase in the inflows during the last three years tenure of democratic

government and the total portfolio has crossed the historic figure of Rs 1,721

billions". It further said that the total net inflow of fund in National Savings

schemes during FY-2007-08 remained Rs 89.5 billion against the initial target of Rs

40 billion. It said that during FY-2008-9 the government had fixed the net

investment target of Rs 150 billion but the NSS has witnessed a record

mobilization of funds and attracted the total net investment to the tune of Rs

267.20 billion highest in the history of National Savings.

"It is due to unshakeable trust of the valuable investors that despite of decrease

in profit rates, the net investment during FY-2009-10 was recorded at Rs 225.70

billion against the target of Rs 220 billion. These figures are sufficient to deny the

groundless argument that funds are heavily withdrawn from NSS", the CDNS

statement said. The statement further said that despite of financial crunch and

shocking flood in the country during Current Financial Year, the NSS has

successfully fetched the gross deposits of Rs 252 billion and net deposits of Rs

67.70 billion as on November 30, 2010, which reflects the fruitful and attentive


35/50


efforts of the organization besides rock solid trust of investors.

The statement added that it is worth mentioning that NSS is tapping currency in

circulation especially from remote areas of the country, it is another example of

trust of the investors that total deposits fetched by all the commercial banks

during first quarter of CFY stands at Rs 16 billion whereas the net investment in

NSS in the same period was Rs 42.50 billion.

As the CDNS pays off the matured loans from its gross receipts and deposits the

net receipts into the government kitty that is why the negative inflows were

recorded in DSC during FY-2008-10, it further clarified. It added that as all the high

cost debt raised during FY-1998-2000 has been matured and paid off during last

two years, the healthy inflows are being recorded in Defence Certificates. During

first five months of CFY (July-November) the total gross investment made in DSC

has reached Rs 16.4 billion with the net investment of Rs 2.00 billion.

It said that the CDNS/ Ministry of Finance is fully committed to serve the small

and middle class savors by introduction of innovative products i.e. Short Term

Savings Certificates and Web-based application for online investment for

investors living in the country and abroad in addition to offering subsidized return

to our pensioner, widows and senior citizen. A state of the art web-based

application for online investment shall be initiated for Non Resident Pakistanis

enabling them for hassle free investment in NSS for risk free and competitivereturn, it added.

Copyright Associated Press of Pakistan, 2010

Rs 115b National Savings investment recorded in Pakistan

Pakistan Times Business & Commerce Desk

The performance of National Savings has improved, particularly during past

couple of years as its investments have recorded tremendous growth, AbdulGhafoor Baloch, an official of CDNS said by adding; the total investments during

the last financial year were recorded at Rs.267 billion against the set target of

Rs.150 billion. For the current financial year, the investments target of the

National Savings is Rs. 241 billion out of which it has already collected Rs.115

billion till the end of December. Giving estimated figures of the investments made


36/50


till January, he said that about 132 billion have been invested till January. The

National Savings aims to launch new schemes including the Sharia Complaint

Paper to facilitate those who are interested in Islamic way of savings. The savings

on this assets-based paper would be on profit-loss sharing basis and it would not

include interests. This scheme would be launched during the current year,

Ghafoor added. The National Savings would also launch bonds/papers for

overseas Pakistanis in foreign currency to facilitate Pakistanis living abroad to

save their incomes adding that the project was in pipeline and under

consideration and would be finalized as soon as possible. To a question, he said

that the project of linking all the 371 centers of National Savings through online

computerization would be completed during next three to four years adding that

the PC-I of the project has already been approved by the government and work

was also going on. He said that the online system would connect all the 371

centers of the National Savings across the country to make the system user-

friendly and facilitate the customers. Baloch said that interest on Defence Saving

Certificates (DSC) s from July 1, 2009 is 8.00 percent while after 10 years

(Compound rate) is 12.15 percent. Similarly the profit in Special Saving Certificate

Registered (SSCR) in the first five periods is 11.60 percent while in the last period

the profit rate is 12.00 percent per annum (pa) from July 1, 2009. He said that

average compound profit on the scheme is 11.67 percent (pa) from July, 1, 2009.Baloch said that on Regular Income Certificates (RIC) is 12.00 percent per annum

from July 1, 2009. Likewise on saving accounts, the profit with cheque facility is

8.00 percent (pa) while without the check facility is 8.50 percent per annum from

July, 1, 2009. On Pensioners Benefit Accounts and Behbood Saving Certificates the

profit per annum is 14.16 percent from July, 1, 2009.

3 top banks lose Rs 13. 1b

Monday, 21 February 2011

Despite some improvements in the deposit base of the banking industry, three

leading commercial banks, one from the public sector and two in the private

sector, have posted Rs13. 1 billion deposit reduction during July-November

(FY11). This trend is widely attributed to a general shift in agents liquidity


37/50


preferences, especially the government, which has been away from bank deposits

to other non-bank sources in the current fiscal year. An SBP report stated that the

government had witnessed unusual deposit withdrawals at both federal and

provincial levels from large few banks during the last five months of the ongoing

fiscal year. This was in contrast to net inflows during the same period in previous

years. According to the report, banks customer deposit base grew by 1.0 per cent

during July-Nov FY11, compared with a decline of 0.1 per cent in the same period

last year. This growth appears to be driven by an exceptionally sharp inflow in the

month of November 2010 wherein the flow of banks deposits increased to over

Rs100 billion. Excluding November, deposit performance for July-October F11

showed a larger reduction than in the same period in past years. From July to

October 2010, deposits experienced a major decline of 1. 2 per cent, compared

with a drop of 0. 3 per cent in the equivalent month last year; and growth of 0.1

per cent for FY07. 08, the report said. The currency to deposit ratio, and, M3 to

M2 ratio, have been rising over the last couple of years. In particular, while an

increasing currency-to-deposit ratio indicates a change in preferences toward

holdings; the rise in M3 relative to M2 represents the growing competition banks

face in deposit mobilization from non-bank sources, most notably National Saving

Schemes (NSS), the report revealed. The imposition of withholding tax on

financial transactions and negative real returns on bank deposits are affecting thedeposit growth of the industry. Higher real returns, along with the security of

investments in NSS instruments have provided strong competition to banks time

deposits in recent years, it added.

Courtesy: Business Recorder

National Savings portfolio doubles to Rs2000bn

Friday, 03 February 2012

Posted by Muhammad Iqbal


38/50


ISLAMABAD: The investment portfolio of Central Directorate of National Savings

(CDNS) has doubled to Rs2,000 billion during past four year, Director General of

the organization Zafar M. Sheikh said here on Friday. Talking to journalists after

formally launching Rs25, 000 Prize Bond, DG National Savings, Zafar M Sheikh said

that the saving culture in Pakistan had been very low as compared to the other

countries of the world but this trend in our country has now changed as the

investments are now in double digits instead of single digit. He was hopeful that

the Rs187 billion saving target set for this fiscal year would be met within the

stipulated time as 97 percent target has already been met till January 2012. "So

far collection has reached to Rs104 billion," he remarked.

Copyright APP (Associated Press of Pakistan),

National Savings Schemes may increase profit rates

ISLAMABAD:

The government may increase profit rates of National Saving Schemes to keep the

avenue lucrative as bonds have become an alternate for investors with a spike in

its returns of late. The move may also help attract new individual-investments in

the National Saving Schemes to stabilise falling deposits, as the governments

decision to ban institutional investments has resulted into negative growth in the

National Saving Schemes deposits last year. A decision to this affect is likely to be

announced by the end of this month, an official of the finance ministry told The

Express Tribune. If the government decides to increase mark-up on investments in

national saving schemes, it will be applicable only on fresh investments, they

added. The increase may be in the range of 16 to 40 basis points, depending upon

the instrument the investors choose. However, analysts advocate at least 100

basis pointsequal to 1%increase to keep the NSS papers attractive. The latest

auction of Pakistan Investment Bonds (PIBs) has unnerved the market, as the yield

on ten-year bonds rose to 13.11 per cent, 41 basis points increase in a single

month. Similarly, the yield on five and three years PIBs increased 21 basis points

and 10 basis points, respectively. This has made the NSS papers less attractive.


39/50


If the government wants to keep a source other than the banking industry for

the budget deficit open, it will have to increase profit rates of the national saving

schemes, said Muzammil Aslam, an analyst at JS Global Capital. According to

sources, the government may increase return on Special Saving Certificates to

11.83 per cent, an increase of 16 basis points over current rates of 11.67 per cent.

The authorities have also worked out 39 basis points increase in profit rates on

Regular Income Certificates. The return on RICs is likely be jacked up to 12.15 per

cent against existing rates of 11.76 per cent, official said. The Defense Saving

Schemes rates may jump to 12.26 per cent, an increase of 36 basis points over

present rates of 11.9 per cent. The rates of Behbood Saving Certificates and

Pensioners Benefit Accounts are already higher than the PIBs rates. However, the

government may also decide to increase profits on these schemes as well. After

the government banned institutional investment in national saving schemes last

year, the Central Directorate of NSS is struggling to achieve this years saving

targets. The NSS received new deposits of Rs109.5 billion from January 2011 to

January 2012, which is Rs9.3 billion or 7.8 per cent less than the net investments

received in the corresponding period of the previous year. The gross investments

during this period remained at Rs467.6 billion. However, an amount of Rs358

billion was either returned after maturity or withdrew by institutions in wake of

the ECCs ban.

Published in The Express Tribune, March 20th, 2012.

Govt. revised downward profit rates on National Savings

Schemes

Friday, 24 August 2012

Posted by Asad Naeem

ISLAMABAD: In response to considerable slash in discount rate by State Bank of

Pakistan, the Federal Government has downward revised the profit rates on

National Savings Schemes for the investment made on or after 27-08-2012.


40/50


According to a statement of CDNS issued here Friday said that the instant revision

has been made in the backdrop of current market scenario and in accordance

with the government's policy to provide market based competitive rate of return

to the investors of National Savings. As per Notification issued by Federal

Government the new rates for Special Savings Certificates(R)/Account, Regular

Income Certificate, Defence Savings Certificates and Savings Accounts has been

fixed at 10.80%, 11.04%, 11.50% and 7.40pc respectively.

Copyright APP (Associated Press of Pakistan), 2012

Reduction in NSS profit rates

October 16, 2012

RECORDER REPORT

A cut in the NSS rates, it may be mentioned, was not unexpected. The range of

downward adjustment was also, more or less, known beforehand. This was

obviously due to the linkage of change in the State Bank's policy rate to the

revision in rates on NSS. The government had already reduced profit rates on NSS

in August this year by a substantial margin, following a cut of 1.5 percentage

points in the discount rate by the SBP earlier in the month.The bankers, however, would certainly be pleased by the announcement. Since

both the banks and the Directorate of NSS compete in the field, though for

different reasons, to mobilize higher deposits from the same groups of

population, banks would now be in a better position to attract the attention of

savers and enlist their deposits. This would enable them to enlarge their lending

activities and earn more profits. No less happy would be the government.

The State Bank's policy to reduce the discount rate has enabled it to lower the

NSS rates and contain its debt servicing liability. The argument that a reduction inthe rates on NSS could deprive the government of a reliable source of financing

the budget to a certain extent is not valid in the current situation. The experience

suggests that investors in NSS are not likely to shift to other sources of investment

due to a reduction in rates on these schemes for a variety of reasons.


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Moreover, the banks are more than eager to compensate for a shortfall in

investment in NSS, if any, and meet the government's budgetary requirements in

order to make more money from risk-free assets. All in all, the present reduction

in the rates on NSS would hurt investors financially but was necessitated by the

recent decision of the SBP to lower the policy rate and would be welcomed by

banks and also benefit the government. Lowering of rates could also adversely

affect the saving rate of economy but its net impact could only be marginal due to

the overwhelming influence of other factors on the savings of economy at the

moment and the size of the cut which is small.

Copyright Business Recorder, 2012

CDNS products fetch Rs 208 billion investment this year: data

November 21, 2012

ASMA RAZAQ

The total investment made in various savings products of the Central Directorate

of National Savings (CDNS) has increased by Rs 119 billion from Rs 89.5 billion in

2007-08 to Rs 208 billion in 2012-13 (till date). Data obtained by Business

Recorder shows that during the fiscal year 2007-08, the investment target ofCDNS was Rs 90.5 billion while the Directorate amassed a total investment of Rs

89.5 billion. In 2008-09, the Directorate fetched Rs 267 billion against the target

of Rs 222 billion. During 2009-10, the investment target of CDNS was Rs 219

billion while the Directorate gathered Rs 225 billion. During 2011-12, CDNS

achieved a total investment of Rs 187 billion against the target of Rs 146 billion

while for the current fiscal year, CDNS was given an investment target of Rs 83.9

billion and so far, the total investment made in its various products has touched

at Rs 208 billion. Data also shows that the Directorate has automated 111 officesacross the country while PC-1 for the phase II of computerization of National

Savings (NS) centers has been submitted to the Ministry of Finance for complete

automation of eight regional directorates with the installation of ATM machines.

Sources in the CDNS said that CDNS was making efforts to reduce the

government's dependency on commercial banks, State Bank of Pakistan, IMF and
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World Bank for borrowings. "Against the proportionate investment targets of Rs

84 billion set for the first five months of 2012-13, CDNS has made an investment

of Rs 208 billion while investment amounting to Rs 4 billion is in the

pipeline.Total Portfolio of National Savings (NS) has increased from Rs 1,070

billion to Rs 2,284 billion over the past five years with a net increase of Rs 1,182

billion," sources said.

Copyright Business Recorder, 2012

CDNS attracts Rs 180 billion investments in four months

November 10, 2012

RECORDER REPORT

The Central Directorate of National Savings (CDNS) has attracted an investment of

Rs 180 billion during the first four months of current financial year 2012-13,

against the target of Rs 75 billion through its various saving schemes which is a

record in history of savings in the country. "This is a reflection of confidence of

the investors on investments of various national saving schemes", a statement of

the CDNS issued here. The statement further said that Central Directorate of

National Savings (CDNS) is playing an important role and busy in the socio

economic development of the country by promoting safest investments in savings

schemes of the country. The statement further said that the CDNS has decided to

launch Rs 100 denomination prize bonds from November 16, and the bonds will

be available for sale in all branches of the CDNS across the country. The first prize

of the Student Welfare bonds will be Rs 700,000 while second prize of the bond

would be Rs 200,000 each would be given to three winners and the third prize of

Rs 1000 each will be given to the winners of 1199 bond winners.

The statement said that the first draws of Rs 100 denomination bonds onFebruary 15, 2013 in Karachi. The statement added that the objective of the

launching the students bonds was to encourage and promote of savings habits

among students.

Copyright Associated Press of Pakistan, 2012


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NSS deposits jump by 290pc

KARACHI, Dec 27: Falling interest rate has diverted deposits from banks to

National Saving Schemes as it amassed huge sums in five months, more than the

deposits mobilized during the fiscal year 2011-12. Latest official figures showed

that deposits mobilized by the government suddenly witnessed a jump of 290 per

cent during July-November of the current fiscal year. During the said period, total

deposits mobilized under NSS rose to Rs229.5 billion. This was much higher than

Rs77 billion mobilized under the same head during five months of previous year.

Thought the NSS rates were revised downward, these are still attractive than

banks. Under the umbrella of NSS, the Defense Saving Certificate offers 11.04 per

cent, Regular Income Certificate offers 10.56 per cent, Special Saving Certificates

9.90 per cent, Behbood Saving Certificates offer 12.96 per cent and Pensioners

Benefits Account offers Rs12.96 per cent. According an official report, these rates

were last revised in October and are applicable till to-date. The figures showed

that the government could mobilize Rs188 billion during the last entire fiscal year.

Banking experts said the rates offered under the NSS were still attractive

compared to banks which are facing tough time after losing their attraction for

government papers. The State Bank lowered the policy interest rate by 4.5 per

cent to 9.5 per cent, from 14 per cent during the last 15 months. This quick shift in

the interest rate hit the banks effort to raise their deposits.Experts said the poor

return from banks forced depositors to put their money in NSS which is more

attractive and risk free. They said that the sudden rise in NSS indicates the

deposits from banks came out to land in NSS. Banks have been profitable for the

last many years by just investing their money into government papers which

offered the return as high as about 14 per cent. The wide banking spread has

been a practice for banks as they used to keep most of their profits and pay poor

return to depositors. This high profit strategy hurt banks deposit mobilization,particularly small and medium banks failed to raise money as per their

requirements. A number of banks, at least nine banks, remained unable to meet

the Minimum Capital Requirement. The low deposit base of small and medium

banks deprived them of share in profit of the banking in Pakistan since the five big

banks earn over 80 per cent profits of the entire banking industry.


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Deposits at National Savings rushed by 198% in 5M FY13

Alfalah Securities Limited

Submitted byPPI News Agency on December 28, 2012

Total deposits mobilized under National Saving Schemes (NSS) have increased to

PKR 229.5 billion during 5M (Jul- Nov) FY13 which was PKR 77 billion during the

same period last year, depicting a surge of 198.05%. According to Alfalah

Securities Limited believes, the significant decline in discount rate since last year

by Central Bank has diverted more funds to NSS which still remains a profitable

and risk-free investment avenue. SBP has cut discount rate by 4.5% to 9.5% from

14.0% during the last 15 months. However, NSS are still offering better returns

where Defense Saving Certificate offers 11.04%, Regular Income Certificate offers10.56%, Special Saving Certificates 9.90%, Behbood Saving Certificates offer

12.96% and Pensioners Benefits Account also offers 12.96% p.a. return on

investment.

Deposits in Pakistans saving schemes surge

December 29, 2012

During the said period, total deposits mobilised under NSS rose to Rs229.5 billion.

This was much higher than Rs77 billion mobilized under the same head during five

months of previous year. Thought the NSS rates were revised downward, these

are still attractive than banks. Under the umbrella of NSS, the Defense Saving

Certificate offers 11.04 per cent, Regular Income Certificate offers 10.56 per cent,

Special Saving Certificates 9.90 per cent, Behbood Saving Certificates offer 12.96

per cent and Pensioners Benefits Account offers Rs12.96 per cent. Banking

experts said the rates offered under the NSS were still attractive compared tobanks which are facing tough time after losing their attraction for government

papers. Experts said the poor return from banks forced depositors to put their

money in NSS which is more attractive and risk free. They said that the sudden

rise in NSS indicates the deposits from banks came out to land in NSS. Banks have
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been profitable for the last many years by just investing their money into

government papers which offered the return as high as about 14 per cent.

JUMP IN NSS DEPOSITS

January 02, 2013

RECORDED REPORT

It seems that savers in Pakistan, rather than going to banks, are queuing up at

National Saving Centers to earn a better rate of return on their deposits.

According to the latest data, total deposits mobilised under National Saving

Schemes (NSS) during July-November, 2012 amounted to Rs 229.5 billion as

against Rs 77 billion in the corresponding period last year, showing a tremendousjump of 290 percent. There could be many reasons for such a spectacular rise in

NSS deposits. During the last 15 months or so, State Bank has decreased the

policy rate by 4.5 percent from 14 percent to 9.5 percent which has depressed the

overall interest rate structure and pushed down the rate of return on bank

deposits by a substantial margin. Though the minimum interest rate of 6 percent

on saving and time deposits prescribed by the SBP is still intact but this is much

lower than offered on various saving schemes of the government.

For instance, Defence Saving Certificates till December 31, 2012 offered 11.04percent annual rate of return while interest earned on Regular Income

Certificates and Special Saving Certificates was 10.56 percent and 9.90 percent

re

Documents

National Savings 222 (2)