Treasury Functions

-Trading
-Funds Management
-Exposure Management
-ALCO (Asset / Liability Committee
 Treasury Division
 With the growth of International business and the spread
of Multinational Enterprise, the treasury function has
acquired a new meaning. No longer the treasury
operations restricted to borrowing and lending of funds
only to one money market.
 The treasury function now includes a diversity of
currencies which can be converted into one another
through the exchange markets and which are transacted
in money markets.
 For understanding the treasury function, one should
know thoroughly about the mechanics of Money Market,
Capital / Equity Markets and Foreign Exchange Markets.
 The Role of Treasury in Commercial Banks

 Managing Asset & liabilities of the bank.

 Managing 'gaps' and the 'risks'.
 Maximizing profits operating within
acceptable risk parameters,
 Maximizing yield on treasury/inter bank
investment.
 Providing rates to branches and customers
Inter-Dept Chart of Treasury
 Lending to
Borrowing
Borrower Branches
Funding

Excess
Spread
Branch
Liquidity TREASURY Investment
Front Office

Treasury
Reserve
Depositor Back Office
Requirement
Functions

 Branches Receive Deposits

 Branches Lend To Customers
 Branches Remit Excess liquidity to try at an average rate (Pool Rate)
 Try maintains reserves with SBP.
 Invest in MM Instruments
 Invest in Govt. Securities
 Invest in Debt Securities
 Capital Market
 Fund FCY Trade Nostro Account
 Lend to Other Branch
Pool Rate:
Pool rate is an agreed rate by management to compensate
branches on excess liquidity which they unable to deploy.
This rate is usually market based and changes as per
management’s policy.

Reserve Requirement:
(CRR) Banks have to maintain 5% of their demand and time
liabilities in current account with State Bank which yields zero return.
(SLR) Banks have to maintain 15% of their demand and time
liabilities in liquid assets as prescribed by the
Banking Companies Ordinance.

Nostro Account:
Nostro means “our account with them“ the term normally is used for
Foreign Currency Accounts of the Bank with their foreign correspondents.
 MONEY MARKET
 The large role of commercial banks in the money market can be easily
envisioned by looking at their assets and liabilities.
 A major portion of their liabilities are demand deposits, which by
definition, are current deposits. Another large portion of bank liabilities
are time deposits, or fixed deposits.
 On the asset side, in addition to loans banks have part of their assets
invested in marketable securities.
 The objectives are to be ranked in the following order:
 To maintain the liquidity of the bank
 To use excess funds so that they produce the highest possible returns
 To borrow necessary funds at the lowest possible cost in case of
liquidity crunch
 In Pakistan MM instruments include Pakistan Investment Bonds,
Treasury bills, Term Finance Certificates, Certificates of Investments,
Commercial Papers issues by companies and short term Inter­bank
borrowings.
MONEY MARKET INSTRUMENTS:
CALL Money:
Clean lending to banks from over night to six months
Repo:
Borrowing against securities from over night to six months.
Rev-Repo:
Lending against securities from over night to six months.
Govt. Securities:
Treasury Bills: Discounted Securities for period from 3 months to 1 year.
Pakistan Investment Bond (PIB): Coupon bearing Securities for
tenors 3 years, 5 years, 10 years, 15 years and 20 years.
Debt. Securities:
Debt. Securities are corporate bonds normally coupon bearing with a
distinguished structure for tenor from 3 years to 10 years.
Capital Market:
Trading
Financing (CFS)
 EQUITY MARKET
 The Equity Desk is responsible for the management of the equities portfolio. The objective
of the equity market desk is based on the annualized return spread from the Karachi
Interbank Offer Rate (“KIBOR”). The spread will be fixed on an annual basis based on the
alternate investment opportunities, liquidity conditions of the bank and the analyst
consensus on the expected performance of the Pakistani equity market.
 The key investment objective behind developing an equity portfolio for the bank is to
create and manage an investment portfolio that allows earning of superior yields in
comparison to other alternate investment opportunities.
 The investment of the bank will be structured around passive management with majority of
the portfolio invested for a medium to long term horizon based on the fundamental
developments in the economy, its various sectors and in the listed companies.
 However, an overnight to short term trading portfolio will be maintained in order to enhance
the yield on the portfolio.
 The risk of the equity portfolio will be managed through:
 Comprehensive focus on fundamental research and equity analysis;
 Diversification of the investment portfolio;
 Rigorous investment review procedures; and
 Development of controls and procedures for the trading portfolio.
 FOREX MARKET
 Domestic markets trade in local currency and operate under regulations governing
domestic market. When funds in any other currency are traded outside the regulations
governing domestic markets, then we have the transaction of Foreign Exchange Markets.
 Any financial transaction that involves more than one 'convertible' currency is a foreign
exchange transaction.
 Most important characteristic of a foreign exchange transaction is that it involves foreign
exchange risk/Exposure.
 The exchange rate is determined by the market forces of demand & Supply.
 Exchange Rate is the price of one currency in terms of another.
 Participants in the FX market:
 All Commercial Banks / NBFls.
 Inter Bank Brokerage Houses.
 State Bank of Pakistan.
 Corporate Treasuries.
 Public Sector/Government.
 Money Changers
 NRPs
 Resident Pakistanis
 Non Residents