KARACHI, Nov 7: The State Bank suffered Rs49 billion exchange loss in fiscal year (July/June) 2000-01 mainly due to an 18.6 per cent depreciation in the rupee value.

According to the balance sheet of the Bank released on October 30 the exchange loss of Rs49 billion reduced the net profit of the SBP to Rs15.6 billion in 2000-01 from Rs36 billion in 1999-00. The SBP added to this amount another Rs5.6 billion from its reserves funds and transferred Rs21.2 billion to the government account after paying it a dividend of Rs10 million at the rate of Rs10 per share. SBP profit is the second largest source of non-revenue income for the government.

What compelled the SBP to add Rs5.6 billion reserves to its net profit of Rs15.6 billion was the projection made in the annual budget for the non-revenue income of the government from SBP profits.

The exchange loss of Rs49 billion in the last fiscal year is more than three times the exchange loss of Rs13.9 billion booked in 1999-00.

The break-up of the exchange loss shows that the central bank lost Rs31.2 billion on forward cover provided under exchange risk coverage scheme alone. The break-up shows the SBP also lost Rs5.8 billion on foreign currency placement; deposits and on other accounts. Senior bankers say SBP provides exchange risk cover on frozen foreign currency deposits and incremental foreign currency deposits. It also provides the cover on institutional foreign currency deposits mobilized from abroad before May 1998.

At the end of fiscal year 2000-01 frozen foreign currency deposits stood at $808 million and incremental foreign currency deposits stood at $324 million. The volume of institutional deposits stood at $774 million.

The term incremental foreign currency deposits refers to the foreign currency accounts opened by the holders of the frozen foreign currency accounts. Pakistan had frozen $11 billion worth of foreign currency accounts after going nuclear in May 1998.

Central bankers say the SBP booked Rs31.2 billion loss on forward cover because the rupee depreciated by a much higher percentage (18.6 per cent) in fiscal year 2000-01 against the exchange risk fee of 5.5 per cent.

The balance sheet reveals that the State Bank also suffered Rs20 billion loss on open market operations including currency swap arrangements — again because of a huge rupee depreciation.

The term open market operations should not be misconstrued for the OMOs that the SBP conducts to manage rupee liquidity in the inter-bank market. The term refers here to the SBP dollar buying from money changers both on spot value as well as under medium to long-term rupee-dollar swaps. The SBP made an outright purchase of $2.1 billion from the open market in fiscal 2000-01. It also entered into rupee-dollar swaps of around $1 billion at the same time. Besides the ministry of finance closed a $186 million swap in the outgoing fiscal year — that caused Rs4 billion loss to the State Bank.

In the outgoing fiscal year the gross exchange loss of the State Bank stood at Rs60 billion but what brought it down to Rs49 billion was Rs10.8 billion income through exchange risk fee.

Earning income through exchange risk fee means that exchange risk charged on foreign currency deposits turned out to be higher than the actual depreciation of the rupee during the period for which the fee was charged. In fiscal 1999-00 also the SBP had earned Rs10.7 billion through exchange risk fee that had slashed its Rs24.6 billion gross exchange loss to Rs13.9 billion.