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Treasury Operations

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Treasury Operations

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    1. 1

    2. 2 Treasury Operations

    3. 3 Money Market Deals Outright Purchase / sale of Securities (PIBs/T Bills) Repo (Borrowing) Reverse Repo (Lending) OMO (Open Market Operation) Clean Lending Clean Borrowing Investment portfolio Securities. (IPS)

    4. 4 Outright Purchase of Securities (PIBs/T Bills) Purchase through Auction/ Primary Dealers (PD) : Primary dealers are those 11 banks which have been authorized by State Bank of Pakistan to participate in the auction. SBP circular is received for auction of securities through Reuters (SBP page). On auction date bids are sent in a sealed envelop to SBP. Results are declared by SBP on Reuters. Purchase confirmation /contract is made by the bank. The successful bids are entered into system and processed. SBP credits our SGLA account with the amount of successful bids after receiving cheque their against.

    5. 5 Purchase Through Secondary Market: Securities are purchased through secondary market (Banks and Development financial Institutions) for:- SBP Statutory Liquidity reserve (SLR) purpose. Trading Purpose SBP cheque is auto generated from the system, SGLA letter is received from the counter party.

    6. 6 Components of SLR: Cash in vault including Foreign Currency held in Pakistan. Balance with SBP (In Current A/C.) which include SBP balances maintained at up country centers. Un-encumbered approved Securities are: Treasury Bills Pakistan Investment Bonds (Holding in Bank’s ‘Own A/c’. equivalent to 5% of the Total Time & Demand Liabilities). Rupee obligations of the Federal Government or Provincial Government or of a Corporation. National Investment Trust Units (Registered)

    7. 7 Deal Verification/Authorization Process: Auto receipt of deal from Front Office through system. Verifier in Back office retrieves deal ticket on screen, obtains relevant documents and matches accuracy of content and relevant terms and conditions. The authorizer counter checks and authorizes the deal.

    8. 8 Deal/Security Maturity Procedure: System Generates all deals maturity report. A letter is sent to SBP of matured amount along with Tax Challan. SBP credits bank account with securities and last coupon values.

    9. 9 Outright Sale of Securities (PIB/T Bills) To raise liquidity of Bank. Sale contract is made by the bank. Securities are sold directly or through brokers. Deal slip is verified/Authorized for completeness. Movement of securities is made through SGLA account and SBP cheque for the sale price is received.

    10. 10 Repo (Borrowing) Sale of securities ( PIBs/T.Bills) with a promise/contract to repurchase on an agreed rate and future determinable date. Transaction are governed by an agreement“Master Repo Agreement” (MRA) only between the two parties. Repo deals are done within the parameters and limits set by the banks internally. Deal done / input at front office is forwarded to Operations for processing/settlement. Subsidiary General ledger Account (SGLA) letter is auto generated from the system after the transaction is verified and authorized.

    11. 11 Deal ticket and confirmations are generated through the system. SGLA letter is printed, signed and delivered to the broker/counter party and SBP cheque received there against. Broker or counter party returns one copy of the contract duly signed.

    12. 12 Deal Maturity Procedure System generates Deal Maturity report. Generates SBP Cheque from the system. Broker delivers counter party SGLA letter. Designated signatories sign SBP cheque with the SGLA letter. SBP Cheque and SGLA letter is handed over to the broker for onward deposit with SBP.

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    14. 14 Deal Maturity procedure System generates Deal Maturity report. SGLA letter is generated from the system. SGLA letter is signed and given to the broker / counter party. SBP cheque is received from the counter party and deposited with SBP along with SGLA letter.

    15. 15 Open Market Operations (OMO) OMO is a tool used by central bank to inject or to with draw excess liquidity from Money Market. Notice for OMO is given by SBP on Reuters for Sale/Purchase (i.e. Repo/Reverse Repo) of Securities (i.e. T-Bills) only for specific tenor. In case of Purchase of Securities by banks, SBP mop up liquidity from the Market i.e. Banks Reverse Repos. In case of sale of securities, SBP inject liquidity in Market i.e. bank’s Repos. Bids are invited through fax. OMO result is announced on Reuters The successful bidders enter into Repo/Reverse Repo contract with SBP.

    16. 16 Reverse Repo (OMO) Maturity. In case of maturity of Reverse Repo (i.e. lending by banks/DFIs to State Bank of Pakistan) an SGLA letter is sent to SBP authorizing SBP to debit our Security Account. SBP directly credits Banks /DFIs current account with principal plus interest. Repo (OMO) Maturity. In case of maturity of Repo (i.e. borrowing by banks/DFIs from State Bank of Pakistan) Auto generated cheque is sent to SBP and SBP directly credits Banks / DFIs SGLA with related Securities.

    17. 17 Bifurcation Of Portfolio & Revaluation Of Securities As per SBP directives banks may keep their securities into following categories: 1- Held to Maturity (HTM): Hold it till maturity . Securities shall be carried out at amortized cost. NOT required to be revalued. Once the security is classified as “HTM” no subsequent shifting to Available For Sale or Held for Trading.

    18. 18 Bifurcation Of Portfolio & Revaluation Of Securities 2- Held For Trading (HFT); Acquired for trading. Taking advantage of short term market / interest rate movements. Securities are to be sold within 90 days from the date of their purchase. Surplus / Deficit on Revaluation shall be taken into P & L. Shifting from Held for trading to AFS or Held to Maturity generally not allowed. It will be permitted only if “not sold within 90 days with prior approval of ALCO. Accounting entries for Revaluation are passed on daily basis and reversed on the next day morning.

    19. 19 Bifurcation Of Portfolio & Revaluation Of Securities 3- Available for Sale (AFS): The securities which do not fall within the previous two categories will be classified as “AFS” Shifting to / from Available for Sale with approval of ALCO & Reason for shifting should be recorded. Any permanent diminution in value of AFS or HTM will be provided for by charging it to P & L A/c. Revaluation of Available for Sale shall be taken to Surplus / Deficit A/c. Permanent diminution i.e. declining in value of securities due to rising interest trend

    20. 20 Revaluation As per Financial Market Association (FMA) circulars banks are required to revalue their securities on PKRV Interpolated Rates. The tenor buckets on PKRV Reuters page are as follows: 0- 7, 8-15, 16-30, 31-60, 61-90,91-120,121-180, 181-270, 271- 366 days, 2,3,4,5,6,7,8,9,10,15 and 20 years. The panel of six Money Market Brokers quoting the Day-end Market Rates for the designated tenors are: AMZ Securities 2 BMA Capital Management 3 Finex Securities 4 Global Securities 5 Invest Capital & Securities 6 Jahangir Siddiqui Capital Market Their closing rates are averaged on Reuter Page for Revaluation bench mark.

    21. 21 Call Lending Lending of funds from one bank to another counter party over night or for a specific agreed tenor at a pre determined interest rate. The funds are lent clean i.e. with out securities. Bank’s earn profit. Deals are executed within parameters / limits set by the banks internally. Deals executed at front office are forwarded to operations through system. Verifier/Authorizer in operations retrieves deal ticket on screen, obtains relevant documents and matches accuracy of content and relevant terms and conditions.

    22. 22 Deal Maturity procedure System generates Deal Maturity report SBP cheque is received from the counter party and deposited with SBP

    23. 23 Call Borrowing Borrowing of funds from one bank to another counter party over night or for a specific agreed tenor at a pre determined interest rate. The funds are borrowed clean i.e with out securities at Kibor. Banks may borrow funds to meet their minimum daily Cash Reserve Required (CRR) ( 5% of DTL) by SBP or for Trading purpose. Verifier /Authorizer in operations retrieves deal ticket on screen, obtains relevant documents and matches accuracy of content and relevant terms and conditions.

    24. 24 Kibor is average rate of “Bid” and “Ask” arrived at by the quotation of 20 different banks. Kibor rates are quoted for : 1 Week 2 Week 1 Month 3 Month 6 Month 9 Month 12 Month

    25. 25 Deal Maturity procedure: System generates Deal Maturity report. SBP cheque is generated in favor of the counter party for the matured amount and sent to the counter party directly / through broker.

    26. 26 Investment Portfolio Securities (IPS) IPS is a Subsidiary General Ledger Account (SGLA) for Bank’s Corporate Clients. PIBs are scrip less securities. To facilitate PIBs/T. Bills corporate purchasers SBP allows Banks / DFIs to keep securities in IPS account at SBP. T bills can be issued in physical from by requesting SBP to debit SGLA account. The corporate clients can not operate IPS account directly. The corporate clients approach their banker for inflow/out flow of securities in IPS account.

    27. 27 Banks may recover charges from their client for IPS services (i.e. HBL charges- Up to Rs. 1.00 million NIL, Up to Rs. 200.000 million @ 0.05% p. a. (Pro-rata basis) per issue, Minimum Rs. 5,000/= and maximum Rs. 100,000/=). Banks maintain client wise/ issue wise account of each IPS customer. Banks collect / distribute profit on securities of IPS account. Banks send claim letters to SBP three days prior to the maturity stating client wise amount of matured principal / coupon On maturity banks collect principle amount of security from SBP for onward credit to IPS clients.

    28. 28 What is Risk : RISK is the uncertainty surrounding events and the impact of these events on expected outcomes. OR RISK is the chance that events or Actions will not have their previously planned / desired outcome.

    29. 29 Risk Categories Credit Risk Inability or unwillingness to repay Includes: Cross Border Settlement Risk Sovereign Risk

    30. 30 Risk Categories Operational Risk Regulatory Risk Internal Control Risk Technology Risk Documentation Risk Security Risk

    31. 31 Market Risk The risk associated with volatility in the movement of market rates for commodities, exchange rates, interest rates and liquidity. The impact of this risk can cause a variation in the net asset value of a bank..

    32. 32 Key Steps In Market Risk Management Risk Identification Risk Measurement Risk Limits/Appetite Risk Monitoring Organizational Set Up

    33. 33 Liquidity Risk Liquidity risk is the current and prospective risk to earnings and capital arising from a bank’s inability to meet its obligations. Liquidity risk arises from a failure to assess market conditions which may affect the bank’ s ability to Liquidate assets quickly and with minimal losses.

    34. 34 Liquidity Risk Management Liquidity risk is managed through a gap analysis showing the maturity profile of the bank’s assets and liabilities within various time bands. The cumulative negative gap in any time band should not exceed a certain percentage say 15% of cumulative liabilities.

    35. 35 Risk Management Policy Individual Dealers Limits Individual Dealers should be assigned limits as per their experience and expertise. Intraday / Overnight Limits Lot size Limits Tenor Limits Instrument Limits

    36. 36 Risk Management Policy Stop Loss Limits These limits should be established in a way that it restricts the amount of Loss/Risk for each type of Products. It should be established on the basis of past performance, profitability and expertise of Dealers / Dealing Room.

    37. 37 Monitoring Of Limits Banks set various limits for various transactions with different weightage. HBL Maximum Daily Delivery Risk (MDDR): Clean Placement 100 % Repo / Reverse Repo : Securities maturing within one year 5 % Securities maturing after one year 10 %

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    41. 41 The End

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