Net Reserves With Banks

Net Reserves With Commercial Banks — A Complete Guide

How Are Bank Reserves Different from SBP Reserves?

Pakistan's total forex reserves are reported in two parts: SBP reserves (central bank assets) and commercial bank reserves. Bank reserves are the foreign currency held by private and state-owned commercial banks — they are not under SBP's direct control and cannot be used to meet the country's sovereign external obligations like debt repayments or import bills.

What's Inside Bank Reserves?

FE-25 deposits: The largest component — these are foreign currency accounts that can be maintained in Pakistani banks. Overseas Pakistanis and exporters commonly hold these accounts.

Trade finance: Foreign currency earmarked for import and export transactions — letters of credit (LCs), bank guarantees, and trade-related foreign exchange.

Foreign placements: Banks' own foreign investments and interbank placements abroad.

Why Do They Matter?

Although bank reserves are smaller than SBP reserves and cannot be used for sovereign payments, they indicate the health of the banking sector's foreign exchange position. When bank reserves decline, it can signal difficulties for importers trying to open LCs, delays in outward remittances, and tightening of foreign currency availability in the interbank market. For businesses that rely on imports — raw materials, machinery, fuel — bank reserves are a leading indicator of potential supply-chain disruption.

The Relationship Between SBP and Bank Reserves

When total reserves are quoted in news headlines, they typically include both SBP and bank reserves. However, analysts focus on SBP reserves because only those can service sovereign obligations — debt repayments, import cover guarantees, and exchange rate defense. Sometimes SBP borrows from commercial banks (through swaps or other mechanisms) to temporarily boost its own reserves — this is exactly why the IMF focuses on Net International Reserves (NIR), which strips out short-term borrowed reserves to reveal the "true" reserve position.

For Overseas Pakistanis

If you send money home from the UAE, Saudi Arabia, or elsewhere, bank reserves matter to you too. Your remittances flowing through banking channels contribute to the banking sector's foreign exchange position. FE-25 deposits may include money you've deposited in a dollar-denominated Pakistani bank account. When banking sector reserves are stable, sending and receiving money through formal channels is smoother and faster. When they're under pressure, you might notice delays or less favorable exchange rates at the bank counter.

Reading the Numbers

Bank reserves tend to be more volatile than SBP reserves because they're driven by private-sector activity — trade flows, deposit withdrawals, and seasonal patterns (remittances spike before Eid and in Ramadan). A decline in bank reserves doesn't carry the same alarm as a decline in SBP reserves, but a sustained drop alongside falling SBP reserves signals broader external pressure that affects the entire economy.