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Banking Sector

And
Flood Disaster Rehabilitation
The recent floods provide an opportunity for the banking industry
to increase financial inclusion, diversify its products on sustainable
basis and play its due role in rebuilding the national economy. The
floods have caused widespread devastation in seventy eight districts
across Pakistan with huge losses of wealth in the form of crops,
livestock, roads, infrastructure, public and private buildings, etc.
Moreover, the floods have rendered approximately twenty million
homeless and posed serious health risks for the affected.
This calamity provides an opportunity to start afresh and build a
platform to embark on new territory by diversifying products and
increasing financial inclusion which will help bring down poverty level
in the country
Agriculture sector, which accounts for 21% of GDP and 45% of
employment, has been particularly hard hit and the direct losses to
major crops have been estimated at PKR 281 billion by the Federal
Ministry of Food & Agriculture & SUPARCO. In addition to agriculture,
the manufacturing sector which depends on agricultural inputs, has
also been adversely affected. The total losses amount to about USD 50
Billion, about 27% of the GDP1
The present scenario does not bode well for the agenda on
financial inclusion as a significant proportion of the flood-hit population
could be pushed below the poverty line. Moreover, those already
excluded will have little access to formal financial services such as
savings or insurance mechanisms to re-build their asset base.
The financial institutions are urged to come forward and play
their due role in rebuilding of the affected areas as the State Bank and
the Government would not be able to do it alone. So, it is
recommended
1. Write-offs existing loans where prospects of recovery are
slim.
2. Deferral of Loan Repayment.
3. Restructuring/Rescheduling of overdue loans.
4. Reduced Mark up.
5. Provision of fresh credit at subsidized rate.
Flood Damage Assessment Report
By
National Disaster Management
Authority
Summary of Damages
Province Wise Summary of Damages & Losses
(As of 02 Oct 2010)
Area Total
Cropped areas
Province Affected Deaths Injured Houses Damaged Affected Population Affected Cattle head
(Hectares)
(Sq.km) Districts
Baluchistan 322 48 98 75,261 12 700,000 255,237 55,501
KPK* awaited 1,156 1,198 200,799 24 3,800,000 205,347 52,750
Punjab 14,047 110 350 509,814 11 8,200,000 774,610 3,572
Sind 30,132 393 1,202 1,114,629 17 7,184,550 1,056,758 263,703
AJK 1,800 71 87 7,106 7 200,000 30,820 288
G-B 7,500 183 60 2,830 7 100,000 3,635 4,669
Grand
Total 1961 2,995 1,910,439 78 20,184,550 2,326,407 324,982
Source: NDMA / PDMAs / SDMA * inclusive FATA
Flood Effected Districts
List of Flood Affected Districts
(As of 26 Sep 2010)
Total affected Severely
Name of Province Districts Affected Moderately affected
KPK* 24 10 14
Punjab 11 7 4
Sindh 17 9 8
Balochistan 12 2 10
AJK 7 1 6
GB 7 0 7
GRAND TOTAL 78 29 49
Communication Network Damages
Roads
Railways
Railway
Last Updated on Friday, 24 September 2010 17:01

S# Division Rs. in Million

1 Peshawar 1,600

2 Rawalpindi 100

3 Lahore 150

4 Multan 1,000

5 Sukkur 800

6 Karachi 600

7 Qutta 1,000

Total 5,250
Agriculture Damages
Last Updated on Monday, 20 September 2010 17:15

Cropped Area Cattle Head


Province Name of District Affected (Acres) Lost
Mianwali 460,512 345
Khushab 59,710 136
Bhakkar 27,202 11
Layyah 83,000 30
Muzaffar garh 304,000 2,127
DG Khan 24,760 27
Rajanpur 320,604 207
RY Khan 117,379 725
Jhang 102,256 11
Multan 45,015 17
Sargodha 167,518 23
PUNJAB Total of Punjab 1,711,956 3,659

Kashmore 400,124 17,500


Shikarpur 110,189 838
Sukkur 102,300 124,448
Ghotki 105,157 41,778
Jacobabad 687,000 615
Larkana 25,028 N.A
Qambar
Shahdadkot 497,380 44,039
Khairpur 46,055 32,290
Naushehro feroze 52,600 -
Dadu 99,190 533
S. Benazirabad 57,170 R.A
Hyderabad R.A R.A
Jamshoro 9,850 197
Matiari 63,500 26
T.M. Khan 20,160 R.A
T. Allahyar
Thatta 177,800 U.S
Badin
Sanghar
Mirpurkhas
Karachi
SIND Total of Sindh 2,453,503 262,264
KPK
Tank
DI Khan 180252
Lakki Marwat 35
Bannu 89232 135
Mansehra
Abbottabad 1500
Haripur 141
Battagram 361
Kohistan 14908
Peshawar 92797 120
Charsada 40725 33559
Nowshera
Mardan 700 8
Swabi 100
Karak 6
Kohat 3750 302
Hangu 26
Swat 34470
Dir Lower
Malakand 35000 2
Shangla 20
Buner 3747 227
Dir Upper 25000 2720
Chitral 150 180
Province
Total of KPK 507423 52750

Gilgit 2,041 112


Skardu 1,144 1,213
Diamer 1,699 1,558
Ghizar 1,783 1,500
Ghanche 776 210
Astore 901 50
Hunza Nagar 639 26
G-B Total of KPK 8,983 4,669
Baluchistan
SIBI 64,000 15,031
Naseer Abad 349,400 unknown
Barkhan 4,205 unknown
kohlu 0 unknown
Kachhi 152,100 unknown
Kila Saifullah 0 0
Jafar Abad 0 unknown
loralai 0 0
Musa Khail 0 0
SHeerani 0 unknown
Khuzdar 0 x
61,000 Not reported
Jhal Magsi
Harnai 0 Unknown
Mastung 0 x
Lasbela 0 X
Quetta 0 x
Total of 630,705
Baluchistan
AJK Total of AJK 76,157 288
GRAND TOTAL 5,388,727 323,630
Educational Facilities Damages
Last Updated on Thursday, 23 September 2010 19:35

No. of schools affected by the flood (As of 21 Sep)


School Affected
Province No
Punjab 3,641
Sindh 6,852
KP 926
FATA
Balochistan 900
AJ&K 197
G-B
Total 12,516
Project Description
The project will rehabilitate and restore damaged farm land and
associated infrastructure in key agricultural sectors/subsectors damaged
by the 2010 floods. It will enable people to resume their normal lives by
restoring access to basic employment. The project design is based on the
National Disaster Management Authority’s damage assessment report
.
Project Benefits and Beneficiaries
Immediate benefits are the restoration of rural economies
and services, creating income and employment for the inhabitants,
including the poor, in the flood-affected areas. Considering the extent
of damage and asset losses, the cost of rehabilitating public
infrastructure and facilities are exorbitant for the Government and for
the local communities. Support in terms of financial assistance,
adoption of appropriate flood-resistant design standards, and
strengthening of disaster preparedness and mitigation will be of
considerable benefit in protecting the poor and affected people from
falling further into poverty. It will help families resettle, provide a safer
and healthier environment, and stabilize livelihoods. The Project is
expected to provide about 12 million people -days of employment to
local skilled and unskilled labor.
Rationale
The devastating 2010 flooding caused severe damage
infrastructure and other assets, and disrupted economic activities,
inflicting heavy losses to agricultural and industrial output and
slowed down expansion in services. Based on the World Bank damage
and needs assessment, the combined losses to assets and output
amounted to at least 40-50 billion, constituting27.78% of gross
domestic product.
The flooding also set backprogress achieved in poverty
reduction, with the poor and the vulnerable suffering most in
terms of losses to crops, livestock, property and housing, and
reduced income opportunities. While the flood-related damage to
small-scale enterprises, export-oriented textile industry, leather, and
foods are likely to affect export growth, imports will come under
mounting pressures due to the sharp rise in post-flood imports of food
grains, medicines, and construction materials.
The widened current account deficit will deplete foreign exchange
reserves, requiring additional assistanceto reduce the external financial
gap. Current expenditures will exceed the budgeted target for
FY2010, with increased expenditures for relief efforts, expansion of
food-assisted safety nets, operation and maintenance of
infrastructure, assistance to flood-affected farmers for commencing
production and manufacturing sector for rehabilitation, and grants to
dislocated people.
The revenue outturn for FY2010 will be lower than expected due
to the flood-induced shrinkage in the tax base. Even with diversion
of resources by the Government from low-priority development
projects to post-flood rehabilitation of infrastructure, the gap in
financing needs is estimated to be $5 billion to $7 billion, depending
on the level of improved standards applied during repair and
rehabilitation.
By providing financing to the agricultural sector, the project will
help the Government by financing a portion of the overall
recovery program, as well as help restore the economic activity
essential for recovery of affected areas.

Financing Plan
The Consortium:
The funding will be provided by a consortium of five of the
largest commercial banks in Pakistan. The consortium will consist of
the following five banks:
1. United Bank Limited.
2. Habib Bank Limited.
3. National Bank Limited.
4. Allied Bank Limited.
5. Muslim Commercial Bank Limited.

Funding From the Consortium:


The consortium will provide loans of PKR 67.35 billion. The details
of the funds provided from each bank are;

Sr. Bank Funds Provided


1 United Bank Limited PKR 16.5 bln
2 Habib Bank Limited PKR 11.5 bln
3 National Bank Limited PKR 13.0 bln
4 Allied Bank Limited PKR 8 bln
5 Muslim Commercial Bank Limited PKR 2.5 bln
Total Funds Provided PKR 51.5 bln

Source of Funding For Each Bank:


The basic methodology followed by the banks is to reduce
investments by half and enhance loans and advances by the same
amount.
United Bank Limited
1. Reduction in investments by PKR 16.5 bln
2. Making these funds available for lending.
Habib Bank Limited
1. Reduction in investments by PKR 11.5 bln
2. Making these funds available for lending.
National Bank Limited
1. Reduction in investments by PKR 13.0 bln
2. Making these funds available for lending.
Allied Bank Limited
1. Reduction in investments by PKR 8.0 bln
2. Making these funds available for lending.
Muslim Commercial Bank Limited
1. Reduction in investments by PKR 2.5 bln
2. Making these funds available for lending.

Effect on Each Bank’s Income Statement:


The following assumptions are taken in these calculations.
1. All trends remain constant.
2. 100% of the loans are paid back.
3. All markup income comes from loans.
4. All non-markup income comes from investments.
5. Average Interest rate is 15%.
6. Payments are amortized monthly on compound interest.
7. Markup-income rises 15%.
8. Non-Markup Income falls 15%.
9. All other things remain constant.

United Bank Limited


1. Increase in markup income of PKR
2. Decrease in non-markup income of PKR
3. Increase in profit of PKR
Habib Bank Limited
1. Increase in markup income of PKR
2. Decrease in non-markup income of PKR
3. Increase in profit of PKR
National Bank Limited
1. Increase in markup income of PKR
2. Decrease in non-markup income of PKR
3. Increase in profit of PKR
Allied Bank Limited
1. Increase in markup income of PKR 1,586,963.85 bln
2. Decrease in non-markup income of PKR 393,097.35 bln
3. Increase in profit of PKR
Muslim Commercial Bank Limited
1. Increase in markup income of PKR
2. Decrease in non-markup income of PKR
3. Increase in profit of PKR
Programs Offered
The consortium will be offering loans for the following purposes.

1. Agriculture Financing.

a. Agriculture Equipment Financing.

b. Agriculture Support Operations Financing.

c. Farm inputs financing.

d. Agriculture support infrastructure financing.

2. Poultry Farm Financing.

a. Poultry farm inputs financing.

b. Poultry farm creation financing.

c. Poultry farm refurbishment financing.

3. Livestock Financing.
Program Costing
And
Debt Collection
Agriculture Financing:

This cost estimate is based on a study carried out by ministry of agriculture


government of Pakistan as per average per acre resources requirements. All other
agriculture financing will be carried out on case per case and on market rates for the
equipment or machinery in question.

Item Cost
(PKR)
Land Lease 10,000
Land Preparation 1,000
Seed and Sowing 2,000
Fertilizer 2,000
Irrigation 1,000
Harvesting Transport 3,000
Total Expenditure 19,000

Poultry Farming:
This cost estimate is based on the prefeasibility study carried out by SMEDA
(Small and Medium Enterprise Development Authority Government of Pakistan), as per
the requirements for a farm size of 5,000 birds. The costs are given as per average per
head animal cost. All other financing will be carried out on case per case and on market
rates for the equipment or machinery in question.

Description Amount (in PKR.)


Machinery & equipment 62,000
Total Fixed Costs 62,000
Raw material inventory 159,614
Prepaid building rent 128,616
Total Working Capital 288,230
Total Project Cost 350,230
Live-Stock Farming:
This cost estimate is based on the prefeasibility study carried out by SMEDA
(Small and Medium Enterprise Development Authority Government of Pakistan), as per
the requirements for a farm size of 130 animals. The costs are given as per average per
head animal cost. All other financing will be carried out on case per case and on market
rates for the equipment or machinery in question.

Description Amount (in PKR.)


Land & Building 8,170
Machinery & Equipment 456
Total Fixed Cost 8,623
Working Capital 1,436
Total 18,685

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