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Banks stood firm in crisis: SBP

KARACHI: The banking sector in Pakistan has been able to withstand headwinds from weakening macroeconomic fundamentals since 2007. Although banks face increased credit risk, the overall sector is well placed to withstand modest shocks as they build their inventory of government securities.
This was stated by the Governor, State Bank of Pakistan, Shahid H Kardar in a message embodied in SBP Annual Report on the working of the Bank (Performance Review) for the year 2009-10 (FY10) which was released Monday.
‘Furthermore, in response to emerging dynamics in the macro-financial environment, the SBP has rationalised the minimum capital requirement and its implementation schedule, which will provide breathing space to the banking sector in this difficult macroeconomic environment’, he said, added that State Bank continued to strive for a balance between price stability and support for economic growth while safeguarding the soundness and stability of the financial system during FY10.
While highlighting some of the key policy measures undertaken by SBP during FY10, Kardar said in response to a
changing inflation outlook, SBP adjusted its stance on monetary policy. The decline in inflation during the initial months of FY10 and a relative improvement in the macroeconomic situation, allowed the central bank to ease its monetary policy stance, he said, added that as the growing fiscal deficit and unexpectedly low external receipts increased risks of a relapse into macroeconomic instability, and as inflationary pressures resurfaced in H2-FY10, SBP decided to pause the easing cycle and subsequently increased its policy rate in July and September 2010.
SBP Governor pointed out that the exchange rate during FY10 continued to reflect market conditions, which helped narrow the external imbalance and improve macroeconomic stability. Foreign exchange reserves, which were at $12.425 billion at the close of FY09, increased by $4.325 billion to reach an all time high of $16.750 at the close of FY10, he said and added that SBP’s decision to enhance banks’ Foreign Exchange Exposure Limit also strengthened the market’s capacity to handle larger volumes of foreign exchange transactions without additional volatility in the exchange rate. -Agencies


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