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Money Week

Banks resort to heavy window dressing

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In order to show a healthy picture of their balance sheets, commercial banks all over the world generally resort to window dressing at the end of the year. Pakistan is not an exception to this rule. During the week ended 31st December, 1999, liabilities/assets of the scheduled banks shot up by more than Rs 25 billion. Demand deposits rose significantly by Rs 15 billion. Even advances to the private sector which were almost stagnant during the year so far jumped by more than Rs 21 billion in a single week. Cash in tills of the banks was also shown at Rs 22.1 billion as against the usual level of around Rs 15 billion.

Another major development during the week was the considerable appreciation of the rupee in the free market. US dollar rate whcih was quoted at around Rs 54.25 during the last four months dropped to under Rs 54 during the week. This was because of the abundant supply of greenback in the market due to its conversion in Pak rupees for Eid celebrations and the measures taken by the government to discourage resident dollar deposits with the banks including the withdrawal of immunity from disclosure of the source of income and imposition of taxes.

During the week ended 1st January, 2000, money supply was provisionally estimated to have increased steeply by Rs 18.9 billion to Rs 1322.5 billion. The expansionary impact was caused mainly by the private sector. Component-wise, deposit money shot up by Rs 21.8 billion neutralised slightly by a modest decline of Rs 2.9 billion in currency in circulation.

During the year so far, money supply is estimated to have increased by Rs 40.5 billion or 3.16 percent.

Total assets/liabilities in the issue department of the State Bank came down by Rs 0.8 billion to Rs 361.9 billion. On the liabilities side, notes in circulation also declined by the same magnitude to Rs 361.6 billion. On the assets side, government of Pakistan securities fell by Rs 0.8 billion to Rs 257.9 billion while approved foreign exchange rose marginally by Rs 0.1 billion to Rs 64.3 billion.

In the banking department of the State Bank, total assets/liabilities went up by Rs 4.9 billion to Rs 524.7 billion. On the assets side, items recording increases were government treasury bills (+ Rs 5.0 billion), government debtor balances (+ Rs 0.2 billion), loans and advances to scheduled banks for export sector (+ Rs 2.9 billion) and other assets (+ Rs 12.6 billion). On the other hand, balances held outside Pakistan in approved foreign exchange and investment in government securities declined by Rs 2.7 billion and Rs 13.1 billion to Rs 11.7 billion and Rs 217.6 billion respectively. On the liabilities side, deposits of others and other liabilities rose by Rs 1.8 billion and Rs 7.8 billion to Rs 258.8 billion and Rs 102.6 billion during the week. Items recording declines, on the other hand, were deposits of Federal government (- Rs 3.0 billion), provincial governments (- Rs 0.8 billion) and banks (- Rs 0.9 billion).

Total assets/liabilities of the scheduled banks rose by Rs 25.4 billion to a record level of Rs 1778.0 billion. On the assets side, advances other than those to banks and other assets shot up by Rs 21.2 billion and Rs 23.2 billion to Rs 747.2 billion and Rs 297.5 billion respectively. Cash in tills also rose by Rs 2.1 billion to Rs 22.1 billion. On the other hand, items recording declines included balances with the State Bank (- Rs 0.6 billion), foreign currency balances with banks abroad (- Rs 6.6 billion), investment in central government securities (- Rs 0.4 billion), and treasury bills (- Rs 10.3 billion).

Total demand and time liabilities of the scheduled banks went up by Rs 23.1 billion to Rs 1159.0 billion. Demand deposits (general) rose steeply by Rs 15.0 billion to Rs 459.3 billion while time deposits (general) showed a modest increase of Rs 1.6 billion to Rs 626.9 billion. Borrowings from State Bank and other liabilities also increased by Rs 2.6 billion and Rs 11.1 billion to Rs 148.6 billion and Rs 339.9 billion respectively. Borrowings from banks abroad, however, came down by Rs 3.3 billion to Rs 21.5 billion.

Bank credit to the private sector including for commodity operations and autonomous bodies expanded sharply by Rs 21.4 billion to Rs 771.2 billion. Earning assets of the scheduled banks, however, indicated a lower increase of Rs 12.5 billion to Rs 1139.4 billion due to a substantial fall in the holdings of treasury bills.

Liquid foreign exchange reserves of the country came down further by $ 35.5 million to Rs $ 1467.5 million as compared with the fall of $ 31.0 million in the preceding week. Increased supply of the greenback pulled down the dollar rate to under Rs 54 during the week after a long time. The dollar rate which was quoted at Rs 54.17 and Rs 54.22 for buying and selling respectively at the end of previous week dropped to Rs 53.85 and Rs 53.90 on 1st January, 2000. However, inter-bank floating rate and authorised dealers' exchange rate for currency notes (selling) continued to be quoted at Rs 51.90 and Rs 52.68 per dollar respectively.

Conditions in the money market remained almost unchanged with the call rate ruling between 10 and 11 percent throughout the week.

Regrettably, "money week" could not be printed during the last one month (four weeks).