ISLAMABAD, Oct 17: The Asian Development Bank (ADB) will extend $260 million new loan to help strengthen financial sector reforms including regulations and improve the governance of the financial market.
The Bank has also promised to provide $200 million risk insurance guarantee to help the country’s insurance sector to avoid problems and losses experienced in the wake of terrorist attack on America in September last year.
A four-member team headed by the chairman, Securities and Exchange Commission of Pakistan (SECP) Khalid Mirza has returned home from Manila after having discussed broad details of new loan and the risk insurance guarantee.
Talking to Dawn here on Thursday, he said that since Pakistan has met various conditionalities relating to first financial sector loan ($300m), the ADB has agreed to extend another $260 million loan for improving the financial sector.
“We have asked for increasing the amount of $260 million soft loan to $300 million and hopefully it will be done,” Mr. Mirza said.
Giving the details, he said that the ADB board of directors was expected to meet shortly to approve the first tranche of $100 million before the end of this year. “If the amount of loan is enhanced to $300 million, we are expecting to have $160 million as part of the first tranche.”
He said that the second financial sector loan will be utilized for pension insurance, improving saving system, strengthening rules and improving the governance of financial market.
“We have negotiated with ADB authorities the Access to International Re-insurance Assistance risk guarantee amounting to $175 million,” he said. He said this facility will offer better re-insurance opportunities from abroad.
The chairman of the SECP said that the ADB will also provide $25 million for enhancing ‘domestic insurance retention capacity’ of the insurance sector.
To a question Mr. Mirza said that Pakistan has dropped the idea of acquiring Over the Counter Market (OTC) loan.
According to the Policy Matrix agreed between the government of Pakistan and the ADB and obtained by this correspondent, the SECP and the stock exchanges will thoroughly review the existing system of ‘badla’ trading (financing for carry over transaction) and its impact on market distortions and volatility and develop a time-bound plan to gradually phase out current badla system through introduction of established systems for margin trading. Similarly, both the SECP and the stock markets will promote the establishment of institutions for stock lending and provide regulations.
The SECP will coordinate development of derivatives market, and issue guidelines for web based trading in capital market instruments. It will also coordinate improvements in clearing and infrastructure settlements, including work with National Clearing Company (NCC) to upgrade clearing house information and provide real time information on client exposure with different brokers. The SECP will also encourage dematerialization of securities to increase efficiency in clearing and settlement and reduce incidence of fake securities by November 2003.