Treasury Operations

Products Overview

Money Market / Securities

Types of Deals:

Inter bank borrowing/lending

REPOs
Reverse REPOs Bills of Exchange

Money Market / Securities

Investment Instruments:

Market Treasury Bills

Short-term government securities Issued in PKR through SBP auction (primary) Maturities not exceeding one year. Also known as zero coupon instruments. Highly liquid debt instruments with welldeveloped secondary market.

Instrument

Market Treasury Bills

Primary Market Secondary Market

Maturity

3M, 6M, 1Y

1 day to 1Y

Availability

Through coupon)

Primary

Dealers

(zero Actively Market

Traded

in

Secondary

Yield

Auction determined value

Maturity determined value in accordance with interest rate expectations None

WHT

None

Zakat

Deducted at source. Not applicable on None. Not applicable on Banks Banks

Market Treasury Bills Accounting Entries:

Outright purchase of MTB Investment Account-MTBs Bank Account-SBP (Entry on purchase of MTBs)
Outright sale of MTB (Gain on sale) Bank Account-SBP Dr Investment Account-MTBs Gain on sale of MTBs (Entry on sale of MTBs)

Dr
Cr

Cr Cr

Market Treasury Bills Accounting Entries:

Outright sale of MTB (Loss on sale)

Bank Account-SBP Loss on sale of MTBs Investment Account-MTBs (Entry on sale of MTBs)

Dr Dr Cr

Accrual of Interest income Dr Cr

Investment Account-MTBs Interest income investment (Entry of interest income earned)

Money Market / Securities

Investment Instruments:

Pakistan Investment Bonds

Medium to long term securities Coupon rate attached Coupons encashment available on 6 months interval Government of Pakistan guarantees payment of the principal and profit on these bonds. Minimum bond value = Rs. 1000

Instrument

Pakistan Bonds
Primary Market

Investment
Secondary Market

Maturity

3, 5, 10, 15, 20 & 30 Years

Return/Coupons

Announced by SBP on each auction

Upto 30 years, however,3, 5, 7 & 10 years PIBs are more actively traded. Based on Yield to Maturity formula
Any time through PDs or secondary market Determined through trading in Money Market None

Availability

Through auction to the PD

Price

Governed through auction

Tax

None

Zakat

Not applicable on banks

Not applicable on banks

Pakistan Investment Bonds Accounting Entries:

Outright purchase of PIBs from Secondary Market Investment Account-PIBs Premium Account (if premium on PIBs) Interest receivable (if accrued income purchased) Discount Account PIBs (if discount on PIBs) Bank Account-SBP (Entry on purchase of PIBs.) Dr Cr Cr Dr Dr

Outright sale of PIBs Bank Account-SBP Discount Account PIBs (if discount on PIBs) Loss on sale-PIBs (if loss on sale) Investment Account-PIBs Premium Account (if premium on PIBs) Interest receivable (if accrued income sold) Gain on sale-PIBs (if gain on sale) (Entry on sale of PIBs) Cr Cr Dr Cr Cr Dr Dr

Pakistan Investment Bonds Accounting Entries:

Coupon Encashment Bank Account SBP Advance Tax (as applicable) Suspense A/C-Interest receivable I/A Interest income (Entry on encashment of PIBs coupon) Dr Dr Cr Cr

Coupons Accrual Suspense A/C-Interest receivable I/A Interest income (Accrual on coupon booked) Dr Cr

Money Market / Securities

Investment Instruments:

Certificate of Investments/Deposits
Issued by the investment banks and leasing companies. Maturity: one month to five years. Interest rate is negotiated according to the rates prevailing in the market. The certificates are non-negotiable and non-transferable.

Money Market / Securities

Investment Instruments:

Term Finance Certificate

Provide medium to long term funding to the issuer. Secondary market is available, which provides liquidity to the investor. Credit rating is required, if the TFC is to be listed on the stock exchange. Foreign investors are authorized to use Special Convertible Rupee Account to fund the TFC purchases. The return paid to the investor are determined on the basis of the maturity and perceived credit risk of the issuer.

TFC Accounting Entries

Investments in TFCs Investment Account-TFCs Dr Bank Account SBP/MO (Entry at the time of investmnent in TFCs)

Cr

Accrual of Interest income Interest Receivable- TFCs Dr Interest income- TFCs Cr (Accrual for the interest income on the month end for the current month)

Redemption or interest received on TFCs Bank Account SBP Dr Interest Receivable- TFCs Cr I/A TFC Interest Cr Investment Account-TFCs Cr

Sample Workflow MM Placement

S No 1 2 3 Description Check the deal with the contents of the documentary evidence attached with the deal. A telephonic confirmation must be obtained from the counterparty in case of local deal.
Supervise the transaction, duly processed into the banking software system. The supervision of transaction will facilitate the passing of relevant accounting entries in the book of accounts.

Responsible Person
Designated officer(s) settlement Designated officer(s) settlement Designated officer(s) settlement

Written confirmations should be sent and obtained in order to regularize the transaction. Discrepancy, if any, should be rectified instantly. Payment made through the RTGS In case counterparty is not the member of RTGS, a SBP cheque of placement amount shall be prepared in favor of the borrowing bank and handed it over to the broker who facilitates the said transaction or directly to the counter-party as the case may be.

Designated officer(s) settlement

5 6

Designated officer(s) settlement Designated officer(s) settlement

Foreign Exchange

Ready Transaction
The Ready Deals are settled on the same day of the deal at a fixed agreed price.

Spot Transaction
Most of the foreign exchange transactions are being executed at a fixed agreed price on spot basis. By convention the value date of the spot transaction (the date on which cash flow happens) is two business days after the date of the deal.

Foreign Exchange

Forward Deals
In Forward deals, transaction is settled on the agreed future dates with a fixed agreed price according to the time duration (the date on which the transactions executed and value date) within which the transaction is to be executed.

Swap Deals
A swap is simultaneously selling and buying or vice versa of the same foreign currency with the same counter-party as single transaction with two different value dates at the agreed exchange rates. The banks contracts to pay and to receive the same (or nearly the same) amount of foreign currency, the difference in rates represents the interest differential of the foreign exchange currencies involved for the period of Swaps.

Foreign Exchange

Placements
This type of transaction is entered into, to avail profitability, excess balance of Nostro accounts by investing (placing) with other banks in order to earn interest. The rate of interest varies with international foreign exchange market various factors and the time period for which the amount has been placed.

Borrowings
This type of transaction is entered into to borrow funds from other banks to satisfy the short-term/long term need of foreign currency. The rate of interest varies with the international foreign exchange market various factors and the time period for which the amount has been borrowed. Fcy borrowing from abroad is allowed with special permission of SBP.

Sample Workflow FX ready purchase of FCY against LCY

S No 1 2 Description
Check the deal with the contents of the documentary evidence, if any, attached with the deal. If deal is done with the local or foreign bank or foreign branch operating in a telephonic confirmation must be obtained from the counter-party. Supervise the Deal, which will process the deal in to the banking software system. The supervision of transaction will facilitate the passing of relevant accounting entries in the book of accounts. Payment processes through RTGS

Responsible Person Designated officer(s) settlement Designated officer(s) settlement

Designated officer(s) settlement

4 5

Designated officer(s) settlement Designated officer(s) settlement

Issuance of SBP cheque is also required as mode of payment to the counter-party (which are not the member of RTGS) from whom bank purchased the foreign currency. Prepare SBP cheque for payment
The authorized officers of the bank will sign the SBP cheque. The names of these officers are to be registered with the SBP for their record.

Designated officer(s) settlement

In case the deal is done with foreign bank operating outside the country wanting to replenish the fund in their account with Askari Bank limited then there is no need to issue SBP cheque since rupee funds have to be credited to the respective account maintained with AKBL.
If the foreign bank maintains account with another bank than issuance of SBP cheque is imperative.

Designated officer(s) settlement

Designated officer(s) settlement

FX Ready deals Accounting Entries

Ready Purchase of Foreign Currency against Local Currency Nostro Account (Purchase Currency) Dr Bank Account-SBP Cr (Entry to be passed at the time of purchase of F.C against Local Currency (PKR) at agreed rate.) Ready Sale of Foreign Currency against Local Currency Bank Account-SBP Dr Nostro Account (Sale Currency) Cr (Entry to be passed at the time of Sale of F.C against Local Currency (PKR) at agreed rate.)

FX - Mark to Market Revaluation

This is a process by which a position or portfolio is revalued based on the current days closing price OR accounting for the fair value of an asset or liability based on its current market price.

Spot foreign currencies positions are revalued daily by using the revaluation rate. Profit and Loss are booked monthly. Forward FX are revalued daily by using present value methodology. Profit and Loss are booked monthly.

FX Types of Rates
Exchange Rate Bid/Ask Rate Forward Rate Intra Branches Sale/Purchase Rate Revaluation Rate Cross Rate Premium/Discount Rate

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