KARACHI, July 21: The State Bank of Pakistan has extended deadline for banks’ total stock market exposure (not exceeding 50 per cent of their equity) to June 30, 2009.

SBP Governor Dr Shamshad Akhtar announced this during her first visit to Karachi Stock Exchange.

She was invited by the KSE management to address a meeting of its board, senior stock brokers and heads of commercial, investment banks.

She said that the central bank’s Prudential Regulatory Framework is largely supportive of exposures to the stock market, and that within the existing regulations, banks have the aggregate capacity of an incremental amount of Rs40 billion to invest in the stock market, if they wish to do so.

She, however, pointed out that stock markets should do more to mobilise resources for the industry by encouraging more and more corporate listings as the banking sector is still unduly burdened with meeting the bulk of the financing requirements of the economy.

She also pointed out that equity market lacks depth, and continues to be small and narrow. There is also high price volatility and the trading is largely speculative. “Therefore, there is a need to increase market base and reduce speculation,” she added.

Dr Akhtar said that listed commercial banks constitute around 26.5 per cent of the KSE-100 index, and 31.6 per cent of KSE-30, and are major drivers of growth in market volumes.

Though the market capitalisation of the commercial banks dropped in July 2008 as compared to its December 2007 levels, the performance of banking system remained healthy in CY08, she added.

“The banks are fundamentally strong and well poised to grow in the future,” she said and added that total assets and advances of banks continued to increase.

“This overall growth in asset base was well supported by growth in deposits, which increased by Rs204 billion to Rs3,832 billion, showing persistent confidence of the general public in the banking system.

“Capital Adequacy Ratio (CAR) as of March 31, 2008 under Basel II framework is still very healthy at 13.1pc.

“The CAR is a key stability indicator that reflects on the solvency of the banking system, and in recent years it has continued a steady improvement,” she added.

Dr Akhtar also briefed the participants on the main elements of SBP’s 10-year financial sector strategy.

Dispelling the impression that rising interest rates and tight liquidity conditions are responsible for the current downturn and retrenchment of foreign funds in the equity markets, Dr Akhtar said that SBP’s monetary tightening measures are a key to containment of demand pressures in the economy. She further added that currently the banking system liquidity is close to Rs200 billion.

Dr Akhtar said that global economic events, particularly rising international oil prices, have hit not only Pakistan but other regional countries as well. High international oil prices and domestic subsidies have resulted in large fiscal and external account deficits, she added.