According to the latest statistics, placed by the central bank on its website, total assets and liabilities of scheduled banks in Pakistan have provisionally shrunk by Rs 10.3 billion in the week ended on August 20, 2005.
The decline was mainly accounted for by a major fall in assets under the head 'lending to financial institutions' (down Rs 21.4 billion) followed by falls of varying magnitudes under 'other assets' (down Rs 11.5 billion) and 'balances with other banks' (down Rs 3.8 billion) partly offset by increases in assets under 'investments' (up Rs 16.3 billion) and 'cash and balances with treasury banks' (up Rs 10 billion).
No break-up of the major decline in 'lending to financial institutions' is available but the banks operations under this head had traditionally comprised items like 'call money lending' representing funds placed with different banks in the inter-bank money market, 'lending under repurchase agreements (reverse repo)' representing purchases of government securities like 'Pakistan Market Treasury Bills' (MTBs) and Pakistan Investment Bonds (PIBs) under resale agreements, 'certificates of investment' or 'listed equities' representing purchase of corporate paper under resale agreements, 'trade related deals' or risk participation and 'placements' representing lending to FIs other than call lending.
It appears banks used these re-called funds to build up their investment portfolio as their 'investments' went up by Rs 16.3 billion during the week.
The decline of Rs 10.3 billion over the week, on the liabilities side, was represented by declines of Rs 11 billion in 'borrowings' and of Rs 2.4 billion in 'other liabilities' partly offset by an increase of Rs 4 billion in liabilities representing 'net assets', including 'unappropriated /unremitted profit' (up Rs 1 billion) and 'surplus/ (deficit) on revaluation of assets' (up Rs 3 billion).
There was almost no change in 'net advances' and 'provisions' as well as 'deposits etc' over the week.
Other heads of the consolidated balance sheet exhibited minor fluctuations on either side of it.
The State Bank, in the meanwhile, has released the revised balance sheet of scheduled banks for the week ended on 23rd July, 2005- the date banks started supplying weekly data on the new format. According to the revised data, the total size of the balance sheet stood reduced to Rs 3,192.5 billion compared with Rs 3,220.4 billion reported earlier- a downward correction of about Rs 28 billion.
A comparison of the two balance sheets revealed that the entire correction was on account of provisions, which was necessitated as banks finalised their unaudited balance sheets for June 30, 2005.
The provisions had since been enhanced from Rs 103.5 billion reported originally to Rs 131.4 billion as revised.
As an offsetting factor, 'other liabilities' of scheduled banks, on the liabilities side, on July 23, 2005 also stood reduced by an almost matching amount from Rs 221.8 billion reported originally to Rs 194 billion as revised.
Liquid foreign exchange reserves of the country, in the meantime, dipped down to $12,361.1 million ($9,622.9 million with SBP and $2,738.2 million with scheduled banks) as on August 20, 2005 compared with the FY06 peak of $12,671.2 million ($9,869.6 million with SBP and $2,801.6 million with scheduled banks) on July 09, 2005.
Overall, the fall in reserves was the result of a mind boggling surge in imports, particularly of machinery and metal group items and to some extent of petroleum products, which led to widening of the trade deficit by 164.52 percent to $724.585 million during July 2005 as against $273.921 million during July 2004.
Imports of machinery, mainly textile machinery, increased by 56.59 percent (to $501.396 million against $320.509 million the same month last year), metal group items by 20.91 percent (to $104.170 million against $86.152 million) and petroleum products 6.21 percent (to $367.882 million against $346.356 million) during July 2005 over the same month last year.
In between the two dates (July 09 thru August 20), the drain was larger in the case of the State Bank (down $246.7 million) than the scheduled banks (down $63.4 million) mainly because of sky-rocketing increase in oil prices during August. Oil leaped past $70 a barrel on 29th August (cf. BR August 30, 2005).
The FE market witnessed mixed trend during the week ended on 20th August, 2005.
In the open market, the rupee lost 20 paisa versus the dollar for buying and selling at Rs 60.15 and Rs 60.25 though, in the inter-bank market, the rupee moved with marginal fluctuations in terms of the dollar for buying and selling at Rs 59.67 and Rs 59.68, respectively. Versus the Euro, the rupee lost its strength sharply at Rs 72.75 and Rs 73.00, respectively.
The rupee showed mixed trend amid rising demand for dollars on the back of higher payments due mainly to increasing trade deficit as explained above aggravated by continuing hike in world oil prices.
It seems the rising trend in the world oil prices might push the dollar further up in the domestic currency market.
(Comments and Suggestions: research.dept@aaj.tv)