Impact of Prudential Regulations and Equity Investment

Banks are allowed to bring their exposures in equity investment within the prescribed limit and share valuation be calculated on cost basis

These show the efforts of the central bank to improve the image of the country, to enhance its international rating in order to attract portfolio investments.

These polices encourage the asset management companies to float mutual funds, and to introduce fund managers for provident funds etc.

Moreover, the Islamic Banks are being encouraged to park their funds in the equity market and they will have the option to invest as much as 35 percent of their equity in the stock market, as compared to 20 percent allowed to commercial banks..

DFIs play their primary role to support the equity market

Consultative process would achieve national objectives in the financial sector.

The valuation of banks' portfolio have been revived at cost while calculating their investment limits, and to extend the time frame for disinvestment of extra shares taken up as part of underwriting obligations.

Banks' profits get enhanced from capital gains, dividends

In 2002, as far as incremental earning is concerned, profits of Bank Alfalah and Faysal increased the most, with growth of Rs 1.7 billion and Rs 1.5 billion, respectively. Bank Al-Habib was third with an increase in earnings of Rs 0.4 billion.

Moreover, the banks now cannot even own more than 30 percent in any company's paid up capital.

While appreciating the need to regulate the activity of commercial banks in the stock market, the market shows reactions upon the perception on these regulations in the context of time frame for implementation of these regulations, inclusion of DFIs for the purpose of these regulations, off-loading of shares underwritten by the banks/DFIs and its time frame, valuation mechanism for valuation of marketable securities etc, and their adverse impact on the stock market.

DFIs are such as Pak-Kuwait and Pak Libya