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Agenda
 Introduction
 Financial Market
1. Commercial Banks
2. Central Bank (State Bank of Pakistan)
 Capital Market
1. Securities & Exchange Commission of
Pakistan
2. Karachi Stock Exchange
 Challenges
 Query session

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 The Financial Market
• A financial market is a market in which
financial assets are traded. A financial
market is a system comprised of individuals
and institutions, instruments and procedures
that bring together borrowers and savers.
Financial markets are a complex interlink of
different financial institutions and
investments

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 Financial Institutions
• Financial Institutions are organizations
where funds are transferred between those
who have funds to invest (savers) and those
who need the funds (borrowers).These
organizations include banks, insurance
companies, savings and loans and credit
Institutions.

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 Financial Sector of Pakistan
• Financial Market
• Capital Market

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 Financial Market of Pakistan
• Commercial Banks
• Development Financial Inst. (DFIs)
• Microfinance Banks
• SMEs
• Investment Bank
• Leasing Companies
• Mutual Funds
• Insurance Co.
• Discount house, Venture Capital, and Housing
finance

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 Capital Market
• Brokers
• Dealers
• Stock Exchanges
• Under writers

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Regulatory & Supervisory
Framework

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 Regulatory & Supervisory
Framework
• Two regulatory authorities are
empowered to supervise the financial
institutions of Pakistan including capital
market.
• The Central Bank (State Bank of
Pakistan)
• The Corporate Supervisor (Securities &
Exchange Commission of Pakistan
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 Regulatory & Supervisory
Framework
• State Bank of Pakistan (SBP) is
custodian of depositors and is
responsible to safeguard the soundness of
financial system.
• In Pakistan:
Commercial banks, DFI`s and MFI`s, and
Islamic banks are regulated by SBP.

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 Regulatory & Supervisory
Framework
• Securities & Exchange Commission of
Pakistan is responsible to develop and
regulate corporate sector as well as
capital market of Pakistan.

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Regulatory & Supervisory
Framework

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• Commercial Banks
and their role in the
market

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 Services typically offered by banks/ DFIs/MFIs
and Islamic Banks

• Taking deposits from their customers and issuing

Checking and Saving Accounts to individuals and
businesses
• Extending Loans to individuals and businesses
• Cashing Cheque
• Facilitating money transactions such as Wire
Transfers
• Issuing Credit Cards, ATM Cards, and Debit Cards
• Storing valuables, particularly in a Safe deposit Box

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Commercial Banks in Pakistan

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 Major Commercial Banks
• NATIONAL BANK OF PAKISTAN
• HABIB BANK LTD
• MCB BANK LTD
• UNITED BANK LTD
• ALLIED BANK LTD

• Major DFIs
• Saudi Pak Investment Company
• Pak Libya Holding Company
• Pak Kuwait Investment Company
• Pak Oman Investment Company

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 Major Islamic Banks
• Meezan Islamic Bank
• Dawood Islamic Bank
• Dubai Islamic Bank
• Bank Islami
• Major MFI
• First Micro Finance Bank
• Khushali Bank
• Tameer Microfinance Bank

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 Over view of Financials of CB,
DFI, Islamic Bank and MFI
• As on December 31,2009, the total
assets base of all institutions stood at
Rs. 6,662.7 billion. Out of which Rs.
3,290 billion are loans and advances.
• The total capital base of industry stood
at Rs. 369 billion with total equity of
Rs.640 billion

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 Over view of Financials of CB,
DFI, Islamic Bank and MFI
• As on December 31,2009, the
institutions earned Rs 55.32 billion after
tax profit. Major part of income earned
through interest amounting Rs. 604
billion while interest paid Rs. 340 billion.
• The ROA of all institutions stood at
1.5% before tax.

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 Over view of Financials of CB,
DFI, Islamic Bank and MFI
• Non-performing loans of the industry
has increased sharply from Rs. 282
billion as on year 2007 to Rs. 432 billion
as on 31.12.2009.

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State Bank of Pakistan (SB)

THE ROLE AND ITS FUNCTIONS

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 State Bank of Pakistan (SBP)
• Primary functions
• Secondary functions
• Non-traditional functions
• Economic Basis

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 Primary Functions
• Sole authority to issue notes
• Conduct of monetary and credit policies
• Regulation and supervision of the financial system
(commercial banks DFIs and MFIs).
• Lender of the last resort.
• Banker’s Bank
• Bankers to Government.

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SECONDARY FUNCTIONS

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 SECONDARY FUNCTIONS
• Public Debt Management
• Management of Foreign Exchange
• Advisor to Government

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NON-TRADITIONAL
FUNCTIONS

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 NON-TRADITIONAL
FUNCTIONS
• Relationship with International Financial
Institutions
• Development of banking system
Training facilities to bankers
• Development of specialized financial
institutions

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SECURIITES & EXCHANGE
COMMISSION OF PAKISTAN

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 Function & Role of SECP
• The Securities and Exchange Commission of Pakistan
(SECP) was set up in pursuance of the Securities and
Exchange Commission of Pakistan Act, 1997.
• The SECP became operational in January 1999 and
has come a long way since then. It was initially
concerned with the regulation of corporate sector and
capital market. Over time, its mandate has expanded to
include supervision and regulation of insurance
companies, non-banking finance companies and
private pensions.
• More than 46,000 companies have been registered
with SECP as private/public or single member
company.

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 Institutions Regulated by SECP

• Specialized Companies
• Insurance Companies
• Stock Markets
• Brokerage Houses
• Central Depository Company
• Credit Rating agencies

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 Financial Institutions Regulated by
SECP
• Specialized Companies (Non-Banking
Finance Companies)
• Investment Banks
• Leasing Companies
• Mutual Fund
• Venture Capital
• Discount Houses
• Housing Finance
• Modarabas

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 Non-Banking Finance Companies

• Investment Banks (8)

• Leasing Companies (11)
• Mutual Funds (121)
• Asset Management Compay (30)
• Moradaba (28)
• Venture Capital (3)

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Major players of NBFC industry
• Orix investment bank
• JS investment Ltd
• Meezan Asset Management Company
• Standard Chartered Modaraba
• Standard Chartered Leasing
• TMT Venture Capital
• Asian Housing Finance Company

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 Industry size of NBFC Sector
• As of December31, 2009, the industry
size stood at Rs. Billion. Out of the
total industry size, mutual funds holds
more than ___% share of the industry
as its asset base stood at Rs. -----
billion.

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REGULATION OF CAPITAL
MARKET (STOCK MARKET)

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 Players in Capital market
• Brokers
• Dealers
• Investment banks
• Mutual funds
• CDC
• NCCPL

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 SECURITY OFFERINGS
• Primary capital markets involve new
securities, generating new capital to the
issuer
• secondary capital markets involve
securities traded among investors.
• The registration of securities in public
markets is regulated by the Securities
and Exchange Commission (SECP)

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 Primary capital markets
• Investment bankers are important in the
primary market because they are often
used to help bring the security issue to
investors.
Three types of services provided by IB
• Managing and advisory services
• Underwriting/Risk bearing
• Selling/ distribution

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 The Unpredictable Stock Market
(Secondary Market)
• The stock market is almost unpredictable. Sometimes,
when a company introduces an interesting product,
you can tell that the company will do well. But other
than that, it may go down or up unexpectedly, making
it hard to choose when to buy or sell. “Am I buying at
a good time, or should I wait till it gets lower?”

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 Secondary capital markets
• Organized Exchange
• It has central location (i.e. KSE in Karachi)
• It gives security
• SECP regulate the KSE
• Over the Counter Exchange
• It has no physical location
• It gives no security
• There is no regulatory body on it
• More efficient market than others

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 Pakistan Capital Market

• Karachi Stock Exchange (KSE)

• Lahore Stock Exchange (LSE)
• •Islamabad stock Exchange (ISE)
•

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ROLE AND FUNCTIONS
OF
STOCK EXCHANGE

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 Role and Functions
• Established for the purpose of assisting, regulating
and controlling business of buying, selling and
dealing in securities.
• Provides a physical location for buying and selling
securities that have been listed for trading on that
exchange.
• Establishes rules for fair trading practices and
regulates the trading activities of its members
according to those rules.
• The exchange itself does not buy or sell the
securities, nor does it set prices for them

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 KSE – Yesterday
• Established on September 18,1947

• Incorporated March 10,1949

• Premier Stock exchange of the country

• Started with 5 companies with a paid up capital of Rs. 37

million
• Trading was done through an open-out-cry system
• The first index was the KSE 50 Index

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 KSE – Today

• Exchange owned by 200 members

• 652 companies listed
• 3 Indices
KSE – 100 Index
KSE – 30 Index
KSE All Shares Index
• Trading currently through an electronic Trading System (KATS
• Market capitalization*: RS 2932 billion
• Paid up Capital*: Rs. 904 billion
• In the year 2007, KSE 100 Index showed a return of 40.19%

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KSE has 3 Indices
• Most widely reported Index
• - Representation of all Sectors of the Exchange
• - Consists of 100 companies representing 85%
of total market capitalization of the exchange

Largest 30 free float market capitalization

companies

Is a capital weighted index and consists of

all companies

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 FORMATION
OF
KSE 100 INDEX
• Rule # 1 Largest market capitalization in each of the 34 Karachi
Stock Exchange sectors excluding Open-end Mutual Fund
Sector.

• Rule # 2 The remaining index places (in this case 66) are taken
up by the largest market capitalization companies in descending
order.

• Rule # 3 Company which is on the Defaulters’ Counter and/or its

trading is suspended, declare Non-Tradable (i.e. NT) in
preceding 6 months from the date of recomposition shall not be
considered in the recomposition of KSE-100 Index.

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 CALCULATING THE KSE-100
initial value of the
three-stock index set equal to 100

• 1
Stock Share No. of Market
price Shares Value
A 20 50 1,000
B 30 100 3000
C 40 150 6000
Total Market Cap. 10,000

Base Period Value/Base Divisor = Rs. 10,000,

= 100
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CALCULATING THE KSE-100
Day 2
Stock Share No. of Market
price Shares Value
A 22 50 1,100
B 33 100 3,300
C 44 150 6,600
Total Market Cap. 11,000

11,000
Index = ————— = 1.10 * 100 = 110
10,000
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 Trading in KSE
• Prospective customer will contact the broker
and placed the order to buy or sell the shares
• The brokers make the transaction in
exchange and transfer the shares in CDC
account.
• CDC after making necessary confirmation
from NCCPL, transfer the shares in the
account of customer after 2 days of
transaction.

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 TYPES OF ORDERS
• Investors may submit orders that specify buying or
selling at whatever is the current price, or they can
specify a price. The different types of orders are as
follows:
• Market order
• Limit order
• Short sale order
• Stop loss order

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 KATS TRADING
• ECN’s: Electronic Crossing Networks
• Internet based trade networks
• Customers can meet directly (no broker)
• Used mostly by professional money managers
• Advantage: fewer intermediaries
• • Disadvantage: less liquidity
• • (Fewer people to trade with)
• Fastest growing markets

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 Supervision of
CAPITAL MARKET
conducting inquiries and audits of
the Stock Exchanges and self-
regulatory organizations in the
securities market.
Conducting audit of brokers
Online monitoring of shares
activity
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 Challenges to Financial Sector
• Minimum Capital/Equity Requirement
• Liquidity requirement
• Corporate governance
• Mergers and consolidations
• Capacity issues
• Legal reforms
• Consolidated supervision
• High rate of NPLS
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 Challenges to Financial Sector
• Independence of regulatory authorities
• Innovation of financial products
• Risk management framework
• Impact of global crises
• Deposit insurance

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