Lecture 4 – International Banking

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Commercial BanksCompanies that transact the business of Banking in PakBanking Companies Ordinance, 1962. Sec 5 (b),

“Banking means the accepting, for the purpose of lending or investment, of deposits of money from public, repayable on demand or otherwise, and withdrawable by cheques, drafts, order or otherwise.”

Scheduled vs Non- scheduled Banks

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Scheduled vs Non- scheduled BanksThe Banks which are registered in the list of SBP are

known as scheduled banks. They are bound to perform Banking services according

to policies and instructions of SBP. they are bound to share every information Accounts to be audited by SBP.Appointment at senior level to be made by / consent of

SBP.

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Under-writing

Underwriting refers to the process that a large financial service provider (bank, insurer, investment house) uses to assess the eligibility of a customer to receive their products (equity capital, insurance, mortgage, or credit). The name derives from the Lloyd's of London insurance market. Financial bankers, who would accept some of the risk on a given venture (historically a sea voyage with associated risks of shipwreck) in exchange for a premium, would literally write their names under the risk information that was written on a Lloyd's slip created for this purpose.

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Banking Services

Mobilizing Money – SavingsAgency services and issuing guaranteesLending and InvestmentGeneral Utility ServicesUnderwriting of Loans (Gov & Public Bodies)International Trade FinancingHajj OperationsTasks assigned by SBP

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Bank Guarantee

A guarantee from a lending institution ensuring that the liabilities of a debtor will be met. In other words, if the debtor fails to settle a debt, the bank will cover it.

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Difference between a bank guarantee and a letter of creditA letter of credit is an obligation taken on by a bank

to make a payment once certain criteria are met. Once these terms are completed and confirmed, the bank will transfer the funds. This ensures the payment will be made as long as the services are performed.

A bank guarantee, like a line of credit, guarantees a sum of money to a beneficiary. Unlike a line of credit, the sum is only paid if the opposing party does not fulfill the stipulated obligations under the contract. This can be used to essentially insure a buyer or seller from loss or damage due to non performance by the other party in a contract.

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Specialized Credit InstitutionsPakistan Industrial Credit & Investment Corporation

(PICIC)Industrial Development Bank Of Pakistan (IDBP)Agricultural Development Bank of Pakistan (ADBP)Investment Corporation of Pakistan (ICP)Small and Medium Enterprise Development Authority

(SMEDA)House Building Finance Corporation (HBFC)Equity Participation FundSME Bank LtdNational Investment Trust (NIT)05/10/15 9

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Specialized Credit Institutions – International

International Monitory FundInternational Bank for Reconstruction & DevelopmentInternational Finance Corporation (IFC) – World BankInternational Development Association (IDA)Multilateral Investment Guarantee Agency (MIGA)The Islamic Development Bank (IDB)Asian Development Bank

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Bretton Woods InstitutionsThe Bretton Woods Institutions are the World Bank, and the International Monetary Fund (IMF). They were set up at a meeting of 43 countries in Bretton Woods. Their aims were to help rebuild the shattered post World War 2 economy and to promote international economic cooperation. The original Bretton Woods agreement also included plans for an International Trade Organisation (ITO) but these lay dormant until the World Trade Organisation (WTO) was created in the early 1990s.

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