MONEY AND CAPITAL MARKET INSTRUMENT

AGENDA
Interest rate trend in Pakistan for last 10 year T-bills and PIB performance Repo and Mutual Fund performance TFCs performance and investors choice Interest rates around the globe Monetary Policy in a glance Investors behavior in low I rate environment

CONTINUES.
GOP and Debt levels DFIs role Bank deposits Pakistan yield structure SBP role Recommendations.

Interest rate trend of Pakistan for last 10 years

YEAR

1st Quarter

2nd Quarter

3rd Quarter

4th Quarter

2003 2004 2005

7.5% 7.5% 7.5%

7.5% 7.5%

7.5% 7.5%

7.5% 7.5% 9%

9% 9% INTEREST RATE TREND FOR LAST 10 YEARS

2006
2007 2008

9%
9.5% 10%

9%
9.5% 12%

9.5%
10% 13%

9.5%
10% 15%

2009
2010 2011 2012

14%
12.5% 14% 12%

13%
12.5% 14% 12%

13%
13% 13.5% 10.5%

12.5%
14% 12% 10%

Treasury bills rate for last 10 years

Intro to T-Bills
Short term secured instrument.

Issued through auction

Cut off yield

Date

3 month

6 month

12 month

8th Jan 2003

15th May 03 10th Dec 03 18th Feb 04

NR
R 6.74% 6.92%

7.03%
NR 6.98% NR

NR
7.21% 7.17% 7.23%

28th April 04
24th Nov 04 25th May 05 20th July 2005

NR
6.55% NR 7.69%

7.07%
R 7.83 7.97%

NR
7.09% NR 8.69%

8th Nov 05
7th Dec 05 1st Feb 06 2nd Aug 06

8.10%
R 8.10% 8.61%

8.14%
R 8.29% 8.81%

8.77%
8.79% 8.79% 9.00%

8th Nov 06
28th march07 15th Aug 07 19th Dec 07

8.64%
8.65% 9.05% 9.12%

8.82%
8.82% 9.15% 9.26%

9.00%
9.02% 9.40% 9.45%

9th April 2008

9.56%

9.87%

10.12%

24th Sep 08
31st Dec 08 25th Feb 09 15th July 09

12.56%
13.85% 12.56% 11.31%

12.69%
14.00% 12.96% 11.39%

R
14.25% 12.99% 11.47%

2nd Dec 09
10th Feb 2010 11th Aug 10 15th Dec 10 23rd Feb 2011 7th Sep 11 28th Dec 2011 8th Feb 2012 16th May 12 5th Sep 12 3rd Oct 12

12.14%
11.91% 12.45% 13.17% 13.44% 13.07% 11.83% 11.74% 11.87% 10.27% 9.73%

12.15%
12.02% 12.65% 13.39% 13.67% 13.30% R 11.81% 11.94% 10.31% 9.76%

12.09%
12.06% 12.78% 13.69% 13.85% 13.40% 11.90% 11.89% 11.95% 10.35% 9.76%

Yield 11.5 12.5 14.5

10.5
11 12 13 14

13.5

10

15

6.5 7 8 9

8.5

9.5

7.5

6 8-Jan-03

15 May-03
10-Dec-03 18-Feb-04 28-Apr-04 24-Nov-04 25-May-05 20-Jul-05 8-Nov-05 7-Dec-05 1-Feb-06 2-Aug-06

8-Nov-06
28-Mar-07 15-Aug-07 19-Dec-07 9-Apr-08 24-Sep-08 31-Dec-08 25-Feb-09 15-Jul-09 2-Dec-09 10-Feb-10 Auction Dates

11-Aug-10 15-Dec-10
23-Feb-11 7-Sep-11 28-Dec-11 8-Feb-12 16-May-12 5-Sep-12 3-Oct-12

6-Months

3-Months

12-Months

PAKISTAN INVESTMENT bond performance

DATE 31 jan 08 31 mar 08 30 jun 08 30 aug 08 19 feb 09 16 apr 09 28 may 09 3 sep 09 12 nov 09 4 feb 10 18 mar 10 27 may 10 14 oct 10 23 dec10 15 feb 11 16 mar 11 27 apr 11 25 may 11 22 jun 11 17 aug 11 14 sep 11 14 oct 11 24 nov 11 21 dec 11 15 feb 12 15 mar 12 10 may 12 6 jun 12 18 jul 12 15 aug 12 26 sep 12

3year 10.05 10.60 12.30 13.70 13.95 12.94 12.50 12.30 12.26 12.30 12.50 12.49 13.90 14.25 14.25 14.08 14.00 14.00 14.00 13.48 13.22 12.16 12.22 12.45 12.45 12.59 12.62 12.75 12.67 11.30 10.63

5year 10.25 10.80 13.05 14.15 14.37 12.95 12.42 12.37 12.40 12.41 12.60 12.55 14.00 14.30 14.29 14.11 14.07 14.06 14.05 13.50 13.24 12.19 12.28 12.70 12.81 12.94 13.05 13.12 13.07 11.70 11.17

10year 10.85 11.45 13.42 14.34 14.94 13.24 12.63 12.50 12.44 12.54 12.75 12.68 14.10 14.36 14.27 14.12 14.10 14.10 14.09 13.51 13.25 12.24 12.32 12.70 12.91 13.20 13.32 13.38 13.33 12.05 11.60

15.75

14.75

13.75

12.75

3 YEARS 5 YEARS 10 YEARS

11.75

10.75

9.75

REPURCHASE AGREEMENT

DEFINITION
A form of short-term borrowing for dealers in government securities. The dealer sells the government securities to investors, usually on an overnight basis, and buys them back the following day.

YEAR

REP0 RATE

Jan 08 July 08
Nov 08 Jan 09 April 09 Oct 09 March 10 May 10 Aug 10

Sep 10
Nov 10 Aug 11 Oct 11 Nov 11 Feb 12 April 12 Jun 12 Aug 12

7% 9% 12% 12% 11% 10% 9.5% 9.5% 10% 10.5%

11% 10.5% 9% 9% 9% 9% 9% 7.5%

Oct 12

7%

12

14

10

0 1-Jan-08 1-Mar-08 1-May-08 1-Jul-08 1-Sep-08 1-Nov-08 1-Jan-09

1-Mar-09
1-May-09 1-Jul-09

1-Sep-09
1-Nov-09 1-Jan-10

1-Mar-10
1-May-10 1-Jul-10 1-Sep-10 1-Nov-10 1-Jan-11 1-Mar-11 1-May-11 1-Jul-11 1-Sep-11 1-Nov-11 1-Jan-12 1-Mar-12 1-May-12 1-Jul-12 1-Sep-12

Repo Rate

Mutual funds performance

Chart Title
400,000

350,000

300,000

250,000

200,000

150,000

100,000

50,000

2002
18,943 6,399 25,343

2003
39,619 11,416 51,005

2004
69,003 24,816 93,819

2005
87,298 37,760 125,057

2006
116,100 43,698 159,798

2007
243,440 52,401 301,261

2008
287,870 46,588 335,228

2009
153,067 28,415 182,361

2010
167,998 30,748 200,046

2011
222,380 25,261 249,199

open end
closed end total NA

CORPORATE DEBT MARKET

TERM FINANCE CERTIFICATE (TFCs)

Presented by: Imtiaz A. Hanfi

DEVELOPMENT OF CORPORATE DEBT MARKET

Development of guidelines for shelf registration of corporate debt.

Collaboration with credit rating agencies to streamline the issuer and instrument rating processes. In addition, the task force will collaborate with the FBR and GoP to rationalize tax treatment of corporate debt instruments to encourage the corporate debt market

Development of DEBT MARKET provides:

Diversification of financial sector into equity, debt and bank financing. Effective allocation of capital competition in financial sector. Supports infrastructure development, privatization, securitization, and the rise of new institutional investors requiring long term assets to match long term liabilities.

Allows more efficient allocation of savings by reducing banks role that also reduces the element of political interference.
Provides retail and institutional investors with several high quality and liquid domestic saving vehicle

Hindrances in development of Debt Market

Fiscal and Trade Deficits Law and Order Problem
Bad Governance, lack of accountability on the part of bureaucracy, Public and Private Sector institutions.

Lack of market expertise Lack of stringent regulatory policies and their effective enforcement. Political interference in the regulatory functions.

TFCs are redeemable capital instruments and may be issued by a company directly to the general public. Unlike straight bonds, they are redeemable capital and are of long tenors. Issued by corporate to raise long-term fund.

 A TFC must be rated before issuance. The rating reflects, the credit risk of The TFC, i.e. the issuers ability and commitment to repay scheduled TFC payments.

Currently two rating agencies PACRA and JCR-VIS are operating in Pakistan.

 Like bonds, TFCs are structured to provide regular income in the form of coupons. Unlike a generic bond, a TFCs principal may gradually be redeemed over the tenor of the instrument.
TFCs are exempt from Capital gain tax. However, coupons payments are subject to income tax. Return on investment may be fixed or floating

Outstanding TFCs
70
60

50
40 30 20 10 L-TFC PP-TFC Amount in Bn.

0 2010 2011 2012

INVESTOR RESPONSE
The subscribers of retail TFCs are mostly the general public. Comprise those who are seeking a good return on their savings and are usually not highly rate sensitive.
Retail investors more than the institutional creed, is sensitive to reputation and brand recognition. Offering a higher rate for there to exist an incentive to invest for the common man.

Interest rates around the globe

Presented by Husnain

INTEREST RATES IN:

UK USA

CHINA
JAPAN

UNITED KINGDOM.
Base Rate Recession UK base rate decided by Monetary Policy committee.

UNITED STATES..
Benchmark interest rate

History

CHINA..
Benchmark interest rate

History

JAPAN.
Benchmark interest rates

History

HOW Do Interest Rates Affect The Economy??

How Do Interest Rates Affect The Value of the U.S. Dollar in the Foreign Exchange Market? How Does the Health of the Economy Affect Interest Rates?

 Higher Interest Rates and Stock Markets..

Interest Rates and Bonds Conclusion

Research Area:

1. Last ten years monetary policy Stance of Pakistan.

2. Investor behavior of current interest rate trend environment.

Consumer Price Index

.
The CPI measures inflation, which is one of the greatest threats to a healthy economy and monetary policy stance therefore, its most important function is to be used by the

Federal government to determine whether economic policies need to be modified to prevent inflation or not.

Last ten years Scenario.

Years Inflation rates last ten years on CPI measures. Government budget barrowing from SBP in Billions Private sector credit of SBP in Billions.

2002 2003

2.50% 3.102%

13.5 12.5

19.2 15.1

2004
2005 2006

4.568%
9.276% 7.921%

13.5
11.5 12.5

19.3
15.1 34.4

2007
2008 2009 2010 2011 2012

70771%
11.998% 20.7755% 11.73% 11% 9.5%

12.9
68.5 23.2 19.7 28.2 44.7

17.3
15.5 0.7 4.8 4.5 4.8

Expansion of key monetary Aggregates of the Monetary Policy Of Paksitan from2002 to 2012. Official data fiscal years in billions Rs.
80 70 60 50 40 30 20 19.2 13.5 12.5 11.2 12.8 19.1 11.5 19.3 17.3 15.3 9.6 19.7 15.5 16.1 12.4 4.8 0.7 0 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 68.5 Series 1 Series 2 Series 3 44.7 34.4 Linear (Series 2) Linear (Series 2)

28.2

Linear (Series 2) Linear (Series 2)

15.1 12.5

15.1
4.5

Linear (Series 2) Linear (Series 2) Linear (Series 2)

10

Show the Government Budgetary Barrowings YOY. Show For the Private sector Credit Show for the M2

Investors behavior current low interest rate trend environment

The effect of market trend on stock exchange returns has been researched for a number of times which suggested that there is a significant impact of market trend on an investors . When the markets trend is good, it creates a positive feeling on an investor through having some favorable prospects of financial markets. On the other hand, negative market trend also hurts the investors by creating a negative relationship with trading index at stocks markets.

Government of Pakistan & Debt Levels

Presented By: Muhammad Ozair Khan Reg# 1256113

Total Public Debt (% to GDP)

61.0 60.0 59.0 58.0 57.0 56.0 55.0 54.0 53.0

Total Public Debt (% to GDP)

FY 07 60 50 40 30 20 10 0 FY 07

FY 08

FY 09

FY 10

FY 11

Domestic Currency Debt Foreign Currency Debt

FY 08

FY 09

FY 10

FY 11

FY07
Domestic Currency Debt (In billion of rupees) Domestic Currency Debt (In percent of GDP) Domestic Currency Debt (In percent of revenue) Domestic Currency Debt (In percent of total debt) GDP (in Rs. Billion) Total Public Debt (in Rs. Billion) 2,601

FY08
3,266

FY09
3,852

FY10
4,651

FY11
6,014

FY12*
6,223

30.0

31.9

30.3

31.3

33.3

29.8

200

218

208

224

266

250

54.2

54.0

50.5

52.1

56.2

56.6

8,673

10,243

12,724

14,837

18,063

20,905

4,802

6,044

7,629

8,921

10,709

10,996

Reasons to heavily rely on Domestic Debt

Fiscal Deficit (Lower GDP growth, Devastating Floods, Energy Shortages, High Inflation, Security Situation, Global Economic Recession)

Government Whole-sale Subsidies on Oil, Electricity, Food & Fertilizers Low Level of Private Investments Market-based Domestic borrowing adds macroeconomic stability

Role of DFIs
What is DFIs
Purpose of DFIs

DFIs Includes

Pak Kuwait Investment company limited

Pak Libya Holding Company Limited Pak Oman Investment Company Limited

Saudi Pak Industrial and Agricultural Investment Company Limited Investment corporation of Pakistan

Role of DFIs in MM
DFIs issues CoI.

What is CoI. ?

Features of CoI..

Bank Deposits

What is Bank Deposit. ?

Types of Bank Deposits. 1. 2. 3. 4. 5. Current Account Saving Account Money Market Account Time Deposit Checking Account

Schedule Bank Deposits

2002 to 2012
7000000 6000000 5000000 4000000 3000000 2000000 1000000 0 2002 2004 2006 2008 2010 2012 Deoosits

PAKISTAN YEILD CURVE STRUCTURE

MM N CM YEILD CURVE

16 14
12 10 8 6 PIBs WA KIBOR

4
2 0

16 14 12

10
8 6

six month kibor end period in (%) yeild on 5 years PIBs end period in(%)

4
2 0 2007 2008 2009 2010 2011

ROLE OF SBP IN FORMING YEILD CURVE.

RECOMMENDATION
To improve the management of government cash flows to maintain better liquidity management by the central bank. Better issuance of securities for both monetary and fiscal instrument To develop more funds for money market instruments To improve supervisory control and regulation of financial institutions

CONTINUES
Eliminates transaction taxes

Develop credit information infrastructure

To promote the system of market makers.

QUESTIONS??????