The document discusses the Karachi Inter-Bank Offered Rate (KIBOR) in Pakistan. Some key points: - KIBOR was launched in 2001 by the State Bank of Pakistan and Pakistan Banks Association as a standardized interest rate benchmark. - It is calculated daily based on rates submitted by 20 major commercial banks for different loan durations, from overnight to 3 years. - Banks use KIBOR as a reference rate to set interest rates for corporate and consumer loans. Adding a margin of 2-3% over KIBOR allows banks to earn a profit. - KIBOR promotes transparency and consistency in Pakistan's banking sector interest rates.

2. Hanam Kausar F11BA167
Sidra Nazar F11BA119
Mohsin Habib F11BA126
Umar Shaharyar F11BA120

3. KIBOR is the average interest rate at which banks
wants to lend money to other banks.
It is given by specialized institution(SBP,PBA) to all the
commercial banks of Pakistan so that they charge
interest to their customers on that basis. This rate is
inflation adjusted rate and then banks by adding 2 or
3% in KIBOR rate charge their customers for their
profit

4. In Year 1999
Summary for KIBOR was presented
In Year 2001
It was Implementated on Money Market
In Year 2004
It was used as Reference Rate for Corporate Lending
In Feb 2004
for the first time, KIBOR-related lending rates to
corporate customers

5.  The KIBOR was launched in 2001 and in 2004 its scope and
operation was expanded. Since it has started, almost every
bank of the country preferred to devise its own mechanism
for determination of KIBOR and it evoked serious reaction
from private sector.
 The SBP in consultation with the Pakistan Banks
Association has introduced KIBOR as a reference rate for
corporate lending to make interest rates more market-
driven.
 The Habib Bank Ltd (HBL) has become the first
commercial bank which has linked its Karachi Inter-Bank
Offered Rate (KIBOR) related financing with State Bank of
Pakistan (SBP).

6. Before 2002, the banking sector has used PKRV
(Pakistan Re-valuation Rate) rates instead of KIBOR.
Every bank and corporation has their own interest charges.
There was no centralized system.
Some banks charge higher and some charge lower rates.
SBP decided that there must be a standard system.

7. Short Tenure
 1 week
 2 week
 1 month
 3 month
 6 month
Long tenure
 1 Year
 3Year

9.  PBA (Pakistan Banks Association)
 FMA (Financial Markets Association)
 SBP: (State Bank of Pakistan)
It gives rules and regulations.

10. Methodology
 There is No specific formula
 State bank of Pakistan (SBP) calculate it. Every
morning SBP demands quotations for
lending/borrowing rates of (1-week rates to 3-year
rates) from Primary Dealer i.e. around 20 strong
commercial Banks of Pakistan and these rates are
floated on Reuters……

11. SBP eliminates 4 Top quotes from higher side and 4
bottom quotes from lower side and take the Average of
Quotations of in-between....... That’s the KIBOR for
the day.
Around 11 A.M every working day it is provided by SBP.
Authenticity is confirmed by making the contributors
liable to accept Bid/Offer within 15 minutes from the
time of up date up to Rs 100 million of Lot Size by
Contributor Banks.
Methodology

12. BENCHMARKING:
Is the process of comparing one's business processes
and performance to industry bests or best practices from other
industries. Dimensions typically measured are quality, time and
cost.
 To encourage transparency
 Promote consistency in market based pricing
 Improve management of the market risk undertaken by
banks.
 No Security problems

13.  True picture of profit margin
 Awareness of profit margin
 Tell ‘s about cost of deposits
 Cost of deposits is low profit margin is low

14.  KIBOR help to protect from
market risk
 Help to maximize the upcoming
risk
 Customer is not being charged
with more interest

15. They are unsecured
loans
Banks don’t need
security against these
loans.

16. For borrowing less than KIBOR
For lending more than KIBOR
Difference of margin = Profit

17. Top 5 banks of Pakistan which contribute for 75% of
banking sector:
 HBL (Habib Bank Limited)
 MCB (Muslim Comercial Bank)
 NBP (National Bank of Pakistan)
 UBL (United Bank Limited)
 ABL (Allied Bank Limited)

18. Its updated daily at 11:30 am on following:
 SBP website
 FMA website
 Reuters/Bloomberg

19. Reuters is an international news agency which is also a
provider of financial market data. It has built a reputation
in Europe and the rest of the world as the first to report
news scoops from abroad.
 KIBOR flashed on Reuters on September 7, 2001.
 Reuters has helped our market come a long way.
 It is quoted on Reuters by 20 commercial banks.
 It is updated at 11.30 AM daily on Reuters.
 KIBOR disseminated on Reuters network.

20. Tenor BID OFFER
1 - Week 9.87 10.37
2 - Week 9.88 10.38
1 - Month 9.88 10.38
3 - Month 9.93 10.18
6 - Month 9.93 10.18
9 - Month 9.94 10.44
1 - Year 9.96 10.46
2 - Year 10.61 11.11
3- Year 11.65 12.15
As on
.
14-Apr-14
Data source: Reuters

21. BID RATE
Rate the bank wish to pay on any borrowing
OFFER RATE
Rate the bank will want to receive on any lending
BID rate is always less than OFFER rate
FLOOR
A bank shall not decrease rate than floor rate
CAP
A bank shall not increase rate than the cap rate
This is used in exception cases
Bank never goes up the ceiling nor goes below the floor.

22. Margin depends on three factors:
Tenor of the deal : Profit margin depends on the time
for which loan is given/taken. Generally, the longer the
term, the higher the rate.
Liquidity level: The more the bank is in need of cash,
usually the higher is the interest rate it offers.
Credit quality: : Lower rates are offered to customers
with more credit worthiness.

23. 1. Cost of deposits
2. Administration cost
3. Customer

24. Cost On deposits
The cost that a bank has
to pay for the funds that he
uses to lend to earn profit in
shape of interest
COD then KIBOR
 Rate decision is of
customer
 If the buyers are not
willing to pay the price
(interest) the merchant
(banks) has to readjust
the price to sell (loans).
Administration Cost
 Heads of bank’s
expenses
Most important head is
“Transaction cost”
Cost KIBORCustomer

25. If the rate for a tenor is not acceptable for any of
the two parties (bank or customer) or both, they
can change the tenor of transaction and agree on a
tenor for which KIBOR is suitable for them.

26. Factorz link with kibor
Interest rate(Direct Relationship)
Rate of inflation(Direct Relationship)
Purchase power(Inverse relationship)
Discount rate (Direct Relationship)
Balance of payment(Inverse relationship)

28.  All floating and fixed rate term loans.
 TFC’s (Term Finance Certificates)
 Commercial Papers
Overdrafts/Running Finance

29. Export finance scheme
Consumer financing and SME lending
Overdrafts and running finance facilities existing
before January 31, 2004
All term loans with agreements executed before
January 31, 2004.

30. Balance Interest rate risk
KIBOR as benchmark
Help Banks create better products for the customer

32. Pakistan Banks’ Association (PBA) represents the
Pakistan Banking Industry. Established in 1953, its
main objective is to coordinate the efforts of the
banking industry, and to share a common vision of
progress and development with its members.

33. The SBP in consultation with the Pakistan Banks
Association has introduced KIBOR as a reference rate
for corporate lending to make interest rates more
market-driven.

35. The Financial Markets Association of Pakistan was
formed in 1997, is a Non-commercial, Non-profit, Self-
financed and Professional Association of Dealers of
Financial Instruments. The members of the Association
are drawn from Dealing Room Staff of all Nationalized
Banks, Foreign Banks, Private Sector Banks, NBFC's and
Interbank Brokerages Houses.
FMAP is affiliated with "Association Comb site
International - Paris". FMAP is also recognized as Self
Regulatory Organization (SRO) by the State Bank of
Pakistan and incorporated under section 42 of the
companies ordinance, 1984

36. KIBOR is published by the Financial Markets
Association of Pakistan in case the Reuters page is
unavailable
FMAP ensures timely and error-free availability of the
kibor rates.
FMAP selected the dealers of the 20 strong
commercial banks of Pakistan

37. FMAP has certain conditions for every tenor, some basis
points can be added to or subtracted from KIBOR.
These are:
50 basis point for 1,week, 2 week and 1 month
25 basis point for 3 months and 6 months
50 basis point for 9 months,1 year,2 year and 3 years

39. Interest rate for overnight lending and borrowing
Timings
“KONIA” rate will be update on Reuters by 12:30 pm from Monday -
Thursday
On Friday & Saturday, it will be updated at 12:05pm.

40. vs.
 Islamic
 Profit base
 Use as
Benchmark for
Profit
 IBOR ( Islamic
Inter-Bank Offer
Rate)
 Conventional
 Interest Base
 Use as
Benchmark for
Profit
 KIBOR

41. In Islamic Banking, KIBOR is just used
as benchmark for profit. It decides how
the profit should be distributed to
maintain standardization in market.
2. There is separate discussion on IBOR
(Islamic Inter-bank Offer rate ), for
Islamic banking which will soon be
implemented.