KARACHI, Nov 7: The State Bank earned more than Rs8.9 billion through foreign exchange dealings in the fiscal year 2001-02 against a huge exchange loss of Rs49 billion in the fiscal 2000-01.

The balance sheet of SBP that forms part of its annual report released recently shows that the bank earned the bulk of profit on foreign exchange dealings through forward covers. What enabled the SBP to earn profit through forward covers provided under the exchange risk coverage scheme.

Bankers say that the SBP provides exchange risk cover against frozen foreign currency deposits and incremental foreign currency deposits i.e. the deposits that the banks accepted afresh in the foreign currency accounts frozen after May 1998 nuclear blasts.

The central bank also provides forward cover on institutional foreign currency deposits mobilized before May 1998. Bankers say the central bank earned a cool Rs8.2 billion through the forward covers it had provided on the above-said deposits at different rates. They said since the rupee went up by 6.7 per cent in the fiscal 2001-02 against the forward cover fee of 5.5 per cent on forward cover it turned profitable for the SBP. Had the rupee depreciated by more than 5.5 per cent it would have incurred some loss to the SBP.

That was exactly the case in the fiscal 2000-01 when the SBP had to book a huge loss of Rs31.2 billion on the forward cover that it had provided under exchange risk cover scheme: the reason was the rupee had depreciated by 18.6 per cent against forward cover fee of 5.5 per cent.

According to the SBP balance sheet the Rs8.9 billion gain on foreign exchange dealings constituted a big portion of the SBP’s operating profit of Rs25.6 billion earned in the fiscal 2001-02, up from Rs6.2 billion in 2000-01. Some adjustments made to arrive at net profit reduced this figure to Rs25.4 billion still higher than the last year’s net profit of Rs15.6 billion. Meanwhile the SBP transferred Rs3 billion from its reserves to increase its total profit for appropriation to Rs28.4 billion up against last year’s Rs21.2 billion.

The profit earned by the State Bank is treated as non-revenue income of the government.