History of banking Industry in paktistan

After the partiotion of the country theres was no bank inintially, so the gap was filled by the Habib bank
which was established in 1941, in 1948 the State bank is formed but the rols of state bank is limited. The
inintially aim of state bank is to regulize commercial banks because at that time state bank account for
only 25 banks out of 195 bank branches in the country. The Habib, Aliied and national bank were the
founding ally of the state bank.

After 1970, The nationalism policy of the Bhutto were favorable for the commercial banks but on the
other hand nationalism policy become the root cause of corruption in Pakistan, this policy were purely
based on nepotism and favoritism for the specific race, thirteen banks were become nationalized under
this policy of now consolidated to 6 banks. The banking council was made and state bank become
regulator of all commercial banks in Pakistan.

The consequences of national policy by Bhutto were now started to happen after 1980 after commercial
banks were used to support politician, big business man and CEO’s, billion of rupees were flashed from
the market as bad debts. Now we can see the objective of government behind this policy and this was
only one consequence we discussed.

In 1991, The national policy was amended and 23 new banks were entered in market. And most of the
banks become privatized like allied bank privatized in 1993, and MCB in 1991. But still state owned 4
banks, these banks were facing fierce competition from private commercial banks.

After 1997, The privatization become weaker when reformational policy established restoring the power
of central banks and state bank regulate the banks.

In 2008, NPL (non-performing loan) rate is increasing due to financial crisis and the loan which ere given
to the business with no credit history are now defaulting, hence it needs a strong regulation to control
the scenario.

Now days top five banks of Pakistan cover almost 50% of the financial sector in Pakistan. Finally, the
movement of financial liberalization is seeing in the country banks are making different financial model
to innovate in financial sector. Like cashless or online banking. The emergence of microfinance banks
makes the industry more efficient.

ROLE OF REGULATORY ORGANIZATIONS;

The federal reserve system, it has three primary functions. Banking supervision, monetary policy and
financial services. The state bank act as federal reserve system, it has been entrusted with responsibility
to carry out the monetary policy and credit policy to target the inflation and macroeconomic policy are
also used by board to control the follow of money,

FDIC, is the protection agency of the deposit by insuring the deposit. It is subsidiary of the state bank.

OCC: The Occ is the regulation body which supervise all the national bank and federal association which
includes federal branches and their agencies.
Securities and exchange commission: The main authority of SEC is to regulate the securities market in
the country. It imposes the law and regulate the law regarding the securities in market to safe the
investor.

BANKING EFFECT ON BUSINESS FIRM

Banking legislation greatly effect the business performance especially in financial sector. For example
after the great recession there was sweeping law for reconstruction of the financial sector.

Credit Availablity:

The banking regulation just like minimum cash requirement for the banks will greatly affect the
availability of credit for the business.

Interest rate:

Interest rate greatly effect the business operations, higher interest will usually discourage the company
to expand while lower interest can beneficial for the company.

Risk:

When there is risk in the market banks usually invest their money in safest investment like t bills or
government bonds, which make the less availability of funds in the market.

SERVICES OFFERED BY BANKS AND OTHER FINANCIAL INTITUTES

BANK AND OTHER FINANCIAL INSTITUTES SERVICES FOR CONSUMER AND BUSINESS

(1) Credit/ debit card

(2) Personal Loan Service
(3) Bank loan Services
(4) Insurance
(5) Wealth management
(6) Saving accounts
(7) Digital banking
(8) Mortgage loan
(9) Mutual Funds
(10)Stock trading
(11)Bond trading
(12)Financial consultancy

COMPETITION IN BANKING INSDUSTRY

After the privatization of banks industry in 1991, The commercial banking is industry in booming and
hence the market is becoming more saturated,now there is cut throat competition between banks in
Pakistan, however there is some big banks like Habib banks which cover large majority of user, but the
banks in Pakistan are in comaptition which gives advantage to the consumer, every bank is trying to take
edge by providing more value to the customer such as free chequebook or internet banking and hence
we see many innovation in banking industry like microfinance mobile banking.
How International Monetary Exchange work

Like every other market, the market of international currency exchange also works on the principle of
supply and demand.

An increase in demand may exert pressure in the currency to go higher and shortage of supply also favor
the currency to go higher in this situation a buyer have to pay more for the same amount currency, for
example you have to pay 100 rupees in for one dollar in 2017 but now you have to pay 160 rupee for the
same one dollar.

Exchange rate on import or export

The exchange rate no doubt directly affect the price and quantity of the import or export. For example,
if you want to import bike from America, in 2017 the bike price was $10,000 when dollar was Rs100 and
now in 2020 assume bike price did not change but dollar is inflated at Rs 160, you have to pay 60 ruppes
for the same price and same quantity.

Role of international banks in Global economy

The international banks played a vital role in social and economic development o the nations. The banks
like world bank is the example of international banks. The role of these is banks is to advise the
developin or underdeveloped nation on how to achieve achieve ecnomic growth, provide adequate
funds or loan to start the project and assit them in the implementations of this projects.

INTERNATIONAL INSTITUES TO ASSIST COMPANIES IN FINANCIAL RISK

There are several agencies which help managing the ris of the company but the main two organizations
are word bank and IIF( insititute of international finance). They issues rules and procedures by complying
on which a company can reduce its global financial risk.

Different international institutes in Pakistan also assisting companies to adopt methods to reduce the
global financial risk by employing accountants from different countries which ultimately help the
companies in elemiantiing the risk and also audit companies also help comapliance of international
standard to avoid global risk.

DOMAIN 2

Investment and securities

Security and history of security

Securities are basically financial instrument which can be used to trade in market, the securities usually
hold monetary value, the government use this instrument to accumalte money from public and
companies use securities to get financing to expand their operation.

Securities consist of bonds, debenture, t bills, Mutual funds, debentures etc.

Securities also traded in secondary financial market in which public individually can purchase a share any
listed company. There are three types of secondary market.
Equity Market: In this market only shares of listed companies traded

Bond market: In this marker government bonds and coropoarte traded

Money market: In market we trade T bills, CD’s, commercial papers, bankers acceptance and other
derivative securities.

The history of securiryt market is that in 1947 stock exchange is established in karachi afterwards
another stock market started in Lahore in 1970 and then Islamabad stock market in 1992. After 2016
govermet merge all three stock market to one stock market which is Pakistan stock exchange and it is
situated in Karachi, Pakistan.

DIFFERENT AMONG STOCK AND BONDS

We have two main types of securities in Pakistan which is most tradaable in market. Stock and bonds

The primary difference between stock and bonds are as follows

STOCK

It is equity type securities, it mean the holder of the stock is called owner and has share in company. The
return is usually in dividends but also can be traded in secondary market. Use to finance the company
without interest but have to share profit but there is equal risk sharing with the company.

BONDS

It is an debt instrument, Use by the companies to finance and return is usually in the form of interest.
The risk of the bonds is very low, whether company in loss or profit they have to pay interest and hence
there is no risk sharing. The holder of bonds is called lender.

IPO IN RAISING CAPITAL.

IPO stand for initial public offering; it is basically the securities which is issued first time by the company.
The IPO usually issued in primary market in which only large institution can buy the securities like banks
and investment companies. When banks bought the security in primary market then they trade the
security in secondary market in which individual buyer can buy the securities.

The process of IPO offering is as followe

1st Step is to contact with investment bank and declare your capital and debt

2nd The investment bank will propose how much security and how much quantity you should issue and
price of shares

3rd The third step is investement banks offer the newly issued secuirtes to different banks thorugh
auction

4th step, in this step those banks who bids higher is accepted and share is issued to them

5th step, Banks trade the bought security in secondary market where individual buyer can buy the
securities.
IMPACT OF TECHNOLOGY IN BROKERAGE INDUSTRY

Technology has bring massive change in brokerage industry before the technology emerged the shares
are usually issued in form of papers and it was difficult to carry all the stock in paper. In past when the
trading in market brokers use to shout in market for their stock to buy. The investor in past also has
difficulty in searching for companies performance, and end up contacting companies itself and
searching librairies for the information.

After the technology take over the world, the brokerage become more efficient now everything in
market is in digital all the stock, shares are recorded by CDC in their digital books which is more efficient
and less time consuming. Nowdays, The investor and information are in a distance of only on click.

ROLE OF REGULATORY ORGANIZATION AND THEIR IMPACT:

In Pakistan two main regulatory organization is SECP and STATE BANK.

SECP

Security exchange commission of Pakistan is an government agency which is established to regulate all
the companies in Pakistan. The main duty of SECP include to protect the investor from fraud and
misrepresentation, To intimate the companies to mainatain standard compliance in Fiancial statements,
and establiseged true and fair environment in market.

The SECP look after all the business in Pakistan, all the affairs of companies from registering to issueing
the stocks, all the investement firms, brokerage houses and law firms. To maintain rpoer rules and
regualktion so that all the business in country can run smoothly and without any hurdle.

STATE BANK of PAKISTAN:

The State bank is the regulatory authority of all the banks in pakisan. It role is to maintain proper rules
and guidance in Pakistan of banking industry. The banks include all the commercial banks, governemtn
banks and investment banks. The state bank control the interest rate and money supply in the country.

Core standard 4

FS 4.1

Broker:

Broker is acting as an agent. The agent which help the investor to buy shaes from the market. The
broker is a bridhe between both investor and the company. Boker usually charge commisiion on the
stock sold by them. The investor has to open an account in brokerage house to start investement in
market.

Stock Echange:

Stock exchange is the secondary market in which securities which is issued in primary now will be trade
in stock echange. In stock echnage an investor can buy any securities from listed companie. The opening
and closing time of stock exchange is 9 AM to 3 PM. There is KSE 100 index in Stock exchange top 100
perfoming companies are sorted. Investor can only buy shares through broker in stock market.

FS 4.2

RISK AND REWARD OF TRADING

Whenever there is risk, the reward should also be attached to them. Similarly in stock market many
companies which is newly formed are full of risk and hence buying there stock is very risky to
accommodate risk there is reward also, these companies usually give higher return if secceeded, these
stock are called penny stock in market. The risk and return can be calculated thorugh CAPM formula, in
which each company has different Beta, The companies with higher Beta usually are more risky but if we
calculated in CAPM formula they usually yield high return to compensate the risk. The investor in market
are mostly risk averse. They want to buy stock which have less risk and therefore return also is less. The
basic formula of stock is the higher the risk higher will be the return. The broker try to find those who
have moderate risk but higher return.

FS 4.3

Mutual Funds:

Mutual funds is an pool of funds. In this type of funds the group of people invested in pool and the funds
manager allocate the funds according to their knowledge. The basic aim of mutual funds to give
opportunity to earn from stock for small investor, basically, the big investor can diversify their portsolio
by alloacating funds in different sector but the small investor can not afford, therefore in mutual all the
small investor accumaulate their money to form a bigger and then experienced funds manager diversify
their portfolio for the maximum return. The mutual funds is sold in units as low as rs5000 per unit.
Mutual funds also consist of bonds.

Stocks:

Stock are the share from companies equity. When the investor buy the stock he is the owner of that part
of the company. The company pay the investor in form of dividends which share from a profit of the
company. In stock usually people with large investement enter because they have diversify their
portfolio to avoid unsystematic risk of the market. Investor can also the earn the profit by trading the
stocks, the stock are also traded in stock exchange. The stocks price fluctuate because of different
internal and exernal factors. A experience broker annalyze the stock buy the stock when it trading in
undervalued and when the its price is up they will sell it. The risk in Stock is very high.

BONDS

Bond are the debt instrument use by the comoany and governmern to accumulate the money form
public. Bonds are usually long term investment. The return on bond are in form of interest. Bonds are
usually risk free but there is interest rate risk in long term bonds. The interest rate of bonds market is
considered as risk free rate. The bond can be sold in premium and discount also.
FS 4.4

NEED FOR INVESTMENT

For business

The investment is the fundamental part of any business. A business first of all need investment to start
their operations, like buying raw material, equioment, paying salaries and for marketing. After their
operation business also need investement to expand their business such as opeining their outlets in
different cities or ecporting their product abroad.

The business can avail investement by the capital introduced by the owner itself or by the laon. For
capital banks issued their shares in market so that public invest in their money in the company. Secondly
business can issue bonds or take loan from bank for the investment in their business.

Consumer:

Business have to build relationship with the customer for the future benefits. The brand invest in
consumer by providing them after sales sevice, customer support and brand marketing.they need
investment for this purpose.

Core Standard 5

INFORMATIONAL SOURCES: