banking asignment 1
TRANSCRIPT
8/9/2019 Banking Asignment 1
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An Overview of History
Of Banking in World:
During Barter System human society realized enormous difficulties of the Barter System
and then money was evolved, which eliminated the difficulties of the Barter. Banking in
fact is as primitive as human society. Then there was a necessity of a regulating body was
felt and the concept of banking emerged.
Origin of the Word Bank:
Bancus or Banque Means a bench
Back (a German word) Means a joint stock fund
When German occupied Italy the
word BACK was change into
BANK
Earliest known public bank Bank of Venice 1157 A.D
Bank of Barcelona In 1401
Bank of Genoa(Italy) In 1407
Bank of Hamburg In 1690
Foreign Banking in
Pakistan:
The foundation of Banking in Pakistan was very weak and quit insignificant. As the time
of independence of our country, the areas constituting Pakistan had only 487 branches of scheduled banks, out of 350 operating in the whole undivided India.
At the time of Independence, Australasia Bank was inherited by Pakistan from India. It
was a small bank had started in Lahore in 1942. It had only 07 branches with a total
deposit of Rs.4 million. This bank was setup by a rich Muslim family in their private
motor garage just to facilitate collection of rents of the estates and to handle allied
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transactions. This family had some business in Australia due to which they had named
the Bank as Australasia Bank.
What is a Bank?
³An institution which takes money as deposits
from households and businessmen and
lend that money as loan to other households and businessmen.´
What is Foreign Bank in Pakistan?
The bank which is incorporated outside the
Pakistan but doing business in Pakistan.
Standard activities Of
Commercial Banks:
Banks act as payment agents by conducting checking or current accounts for customers,
paying cheques drawn by customers on the bank, and collecting cheques deposited to
customers' current accounts. Banks also enable customer payments via other payment
methods such as telegraphic transfer, EFTPOS, and ATM.
Banks borrow money by accepting funds deposited on current accounts, by accepting
term deposits, and by issuing debt securities such as banknotes and bonds. Banks lend
money by making advances to customers on current accounts, by making installment
loans, and by investing in marketable debt securities and other forms of money lending.
Banks provide almost all payment services, and a bank account is considered
indispensable by most businesses, individuals and governments. Non-banks that provide
payment services such as remittance companies are not normally considered an adequate
substitute for having a bank account.
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Banks borrow most funds from households and non-financial businesses, and lend most
funds to households and non-financial businesses, but non-bank lenders provide a
significant and in many cases adequate substitute for bank loans, and money market
funds, cash management trusts and other non-bank financial institutions in many cases
provide an adequate substitute to banks for lending savings to.
Wider Commercial Role:
The commercial role of banks is not limited to banking, and includes:
y issue of banknotes (promissory notes issued by a banker and payable to bearer on
demand)
y processing of payments by way of telegraphic transfer, EFTPOS, internet banking
or other means
y issuing bank drafts and bank cheques
y accepting money on term deposity lending money by way of overdraft, installment loan or otherwise
y providing documentary and standby letters of credit (trade finance), guarantees,
performance bonds, securities underwriting commitments and other forms of off-
balance sheet exposures
y safekeeping of documents and other items in safe deposit boxes
y currency exchange
y acting as a 'financial supermarket' for the sale, distribution or brokerage, with or
without advice, of insurance, unit trusts and similar financial products
Channels:
Banks offer many different channels to access their banking and other services:
y A branch, banking centre or financial centre is a retail location where a bank or
financial institution offers a wide array of face-to-face service to its customers.
y ATM is a computerized telecommunications device that provides a financial
institution's customers a method of financial transactions in a public space without
the need for a human clerk or bank teller. Most banks now have more ATMs than
branches, and ATMs are providing a wider range of services to a wider range of
users. For example in Hong Kong, most ATMs enable anyone to deposit cash to
any customer of the bank's account by feeding in the notes and entering theaccount number to be credited. Also, most ATMs enable card holders from other
banks to get their account balance and withdraw cash, even if the card is issued by
a foreign bank.
y Mail is part of the postal system which itself is a system wherein written
documents typically enclosed in envelopes, and also small packages containing
other matter, are delivered to destinations around the world. This can be used to
deposit cheques and to send orders to the bank to pay money to third parties.
Banks also normally use mail to deliver periodic account statements to customers.
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y Telephone banking is a service provided by a financial institution which allows its
customers to perform transactions over the telephone. This normally includes bill
payments for bills from major billers (e.g. for electricity).
y Online banking is a term used for performing transactions, payments etc. over the
Internet through a bank, credit union or building society's secure website.
y Mobile banking is a method of using one's mobile phone to conduct simple banking transactions by remotely linking into a banking network.
y Video banking is a term used for performing banking transactions or professional
banking consultations via a remote video and audio connection. Video banking
can be performed via purpose built banking transaction machines (similar to an
Automated teller machine), or via a videoconference enabled bank branch.
FOREIGN BANKS:
y 1. ABN Amro Bank N.V.
y 2. Al-Baraka Islamic Bank B.S.C.(E.C.)
y 3. American Express Bank Limited
y 4. Bank of Cylon
y 5. Credit Agricole Indosuez
y 6. Citibank N.A.
y 7. Deutsche Bank AG
y 8. Doha Bank
y 9. Habib Bank A.G. Zurich
y 10. International Finance Investment & Commerce Bank Limited (IFIC)
y 11. Mashraq Bank psc
y 12. Oman International Bank S.O.A.G.
y 13. Rupali Bank Limited
y 14. Standard Chartered Bank (Pakistan) Limited
y 15. Standard Chartered Grind lays Bank Limited
y 16. The Bank of Tokyo-Mitsubishi Limited
y 17. The Hongkong and Shanghai Banking Corporation Limited
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Foreign Banks and
Their Braches in Pakistan:
Al-Baraka Islamic Bank
(29)AbbottabadFaisalabad
GujranwalaGujrat
Hyderabad
Islamabad (2)
-Blue Area Jinnah Avenue-F-10 Markaz
Karachi(7)-Gulshan-e-Iqbal
-Gulshan-e-Maymar -I.I.Chundrigar Road
-Khiaban-e-Jami-Korangi Industrial Area
-PECHS Shahra-E-Faisal-SITE Area
Lahore (5)-64- Circular Road
-Faisal Town-Phase III,DHA
-Race Course Road
-Shahrah-e-Quaid-e-AzamMansehra Mirpur Multan Peshawer
Rawalpindi (3)-Chandni Chowk, Murree
Road-Jinnah Road
-Security Plaza, the MallSahiwal Sialkot
Wah Cantt
Barclays Bank PLC
Pakistan (9)Islamabad (2)
-F-7 Markaz-G.T.Road Rawat
Karachi (3)-M.T.Khan Road
-Shahra-E-Faisal-Khayaban-E-Sheraz Dha
Lahore (2)
-Mall Road
Mangla RawalpindiCiti Bank N.A (26)Faisalabad Hyderabad
Islamabad (2)-94 West Blue Area
- F-11 Sector
Karachi (10)
-AWT Plaza-Dewan Center
-DHA Phase VI-Hassan Centre, Gulshan
-Hyderi Point, N Nazimabad-Khyban-E-Itehad
-I.I. Chundrigar Road-Shahrah-e-Faisal
-Shaheed-E-Millat CopHousing Society
-Clifton
Lahore (7)
-Cavalry Ground-DHA Phase III, Z-Block
-EFU, Jail Road
-Gulberg III-Johar Town-New Garden Town
-Shahrah-e-Quaid-e-AzamGujranwala Jhelum
Multan SialkotRawalpindi
Deutsche Bank AE (3)Islamabad Karachi
Lahore
Oman Int ernational Bank
S.A.O.G (3Karachi Lahore
Gwader
The Bank of Tokyo-
Mitsubishi, Ltd (1)
Karachi
The Hongkong & Shanghai
Banking Corp (9)Islamabad Faisalabad
Karachi (3)
-Al-Karan Centre, Clifton-Shaheen Complex
-Tauheed Commercial Street,Phase V,
DHALahore Multan
Rawalpindi Sialkot
Indian Banks(9)*
Stat e Bank of India (2)Karachi Lahore
The Bank of India (1)Karachi
The C entral Bank of India
(3)
Hyderabad KarachiLahore
The Ori ental Bank of
Commerce (1)
Lahore
The P unjab National Bank (1)Lahore
The Unit ed Commercial
Bank (1)
Karachi
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-Commercial Area Phase III
DHA
Foreign Banks Performance
Comparative Real GDP Growth Rates (%)
Country 2005-06 2006-07 2007-08 2008-09 Diff (FY09-
FY-08)
Pakistan 5.8 6.8 4.1 2.4 -1.7
Services Contribution to GDP Growth Rates (%) points
Services 4.4 3.3 3.6 3.41 1.92
Quarterly Performance
Review of the Banking System June 2009:
Overview:
Banking system witnessed some let up in the impacts of macroeconomic pressures
that have been affecting its asset quality and growth for last few quarters, though
overall macroeconomic outlook with slight improvements remained stressful. IMFµs
latest estimates predict that world Gross Domestic Product (GDP) would decline by
1.0 percent in 2009 followed by a modest 3.0 percent growth in 2010. Pakistanµs
economy also grew by 2.0 percent during FY09 ± the lowest for current decade ±
while the projection of 3.3 percent for FY10 also remains low.
Major stress from weakened economic conditions i.e. flow of additional Non
performing Loans (NPLs) that was pronounced in last couple of quarters, pacified to
some extent as NPLs grew at slower pace. Nevertheless, the system continues to facea considerably heightened credit risk, which has built up since later half of CY083.
The systemµs asset and deposit base witnessed noticeable increase as compared to
recent trends. Due to enhanced loan loss provisioning and decline in banks¶ risk
appetite, reflecting in enhanced risk based capital adequacy position, the baseline
solvency indicators registered some improvement. Accordingly, the system continued
to show strong resilience towards unusual shocks in major risk factors.
The asset base of the banking system grew by 6.0 percent. The deposits, which had
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been showing stagnancy since Jun-08, registered an appreciable growth of 8.2
percent during the quarter under review. The advances for grew by 5.0 percent;
however, this increase occurred in lending to public sector for its Commodity
Operations and to Public Sector Enterprises (PSEs). Due to risk aversion of banks and
slackened demand from private sector, lending to private sector shed by 1.8 percent.
Further, banks¶ investments in Government papers also significantly grew by 12.9 percent during the quarter under review. Accordingly, asset mix further shifted from
loans and advances to investments in government papers.
The increased macroeconomic vulnerabilities and constrained repayment capacity of
borrowers have resulted in significant increase in NPLs of the banking system during
last two quarters. The quarter under review, however, witnessed slowdown in
infection rate as the NPLs accumulated at relatively passive rate of 4.9 percent to
Rs398 billion (Rs379 billion in Mar-09, and Rs359 billion in Dec-08). Due to a
matching growth in loan portfolio, the infection ratio remained at the last quarter
level. This increase in NPLs occurred in Doubtful and Loss categories and banksalmost fully provided for additional NPLs. Accordingly, net infection and capital
impairment ratios slightly receded, and NPLs coverage after deteriorating over the
last few quarters improved to 70.2 percent.
The significant increase in loans loss provisioning moderated the earnings of the
system: year to date Profit before Tax (PBT) of Rs47.8 billion in Jun-09 as
compared to Rs61.4 billion for corresponding period of CY08. The baseline
indicators of Return on Asset (ROA) and Return on Equity (ROE) remained
significantly lower than the level for corresponding period of last year, though still
higher than entire year results of CY08. Satisfactory earnings, however, were notwidely shared by market players and were skewed towards large and medium-sized
banks as most of the small sized banks¶ earnings remained in red.
Accumulation in year to date earnings led to reasonable increase in equity base of the
system. This growth was also augmented by improvement in revaluation surpluses on
both Available for Sale (AFS) equity investments and fixed income securities due to
favorable movements in market prices. The net worth to total asset ratio slightly came
off. However, improvement in eligible capital and reduction in Risk Weighted Assets
(RWA) as the banks continued to shift their asset mix from private sector credit to
investments in government papers and lending to PSEs, improved the risk based
Capital Adequacy Ratio (CAR) to 13.5 percent (14.0 percent for commercial
banks).
Deposits after showing stagnancy for the last few quarters, witnessed a significant
increase which surpassed growth in advances, and a larger share of fresh deposits was
invested in liquid assets. Resultantly, the liquidity profile of the system further
improved during the quarter. Advances to deposits ratio (ADR) came off to 69.6
percent and liquid assets to total assets ratio improved to 31.2 percent. Similarly, the
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market risk of the system with some moderation remained subdued. Strong recovery
by the capital market made for the substantial part of revaluation losses, which
accumulated during later half of CY08. Interest rate risk was also low as the interest
rates gradually declined during the quarter, appreciating the value of fixed income
securities while re-pricing mismatches remained within acceptable ranges.
Going forward, economic slowdown and domestic security issues are likely to
dampen the growth of the banking system. Low demand for banks µcredit from
private sector, increased risk aversion on the part of banks, and public sector demand
for bank credit will further shift asset mix away from advances to government papers
and lending to PSEs. Given the slackened economic activities and constrained
repayment capacity of borrowers, credit risk continues to remain the foremost concern
for the system. However, stress test results indicate that banks are well placed to
withstand any unusual shocks in credit risk factors. Banks have though shown strong
performance in attracting deposits during the quarter under review.
However, future growth in earnings assets and lending to private sector for supporting
the accelerated economic activities during Oct-Dec quarter will largely depend upon
banks¶ ability to mobilize fresh deposits. Therefore, they will have to step up their
efforts for mobilizing deposits, which are again showing some stagnancy in latest post
quarter statistics. Keeping in view some improvements in key economic indicators,
State Bank of Pakistan (SBP) has been following the policy of discreetly easing off
monetary policy for providing impetus to sustainable recovery. Accordingly, the
interest rates are likely to remain relatively low compared to CY08 levels. The
system, on aggregate basis, is expected to post satisfactory earnings, though the
individual banks would experience mixed results, depending upon their size andearning capacities.
Risk Assessment of the Banking System:
Credit Risk:
The NPLs of the banking system increased by 4.9 percent to Rs398 billion during
the quarter. Increase in NPLs is distributed across all banks; however, most of the
increase came from top tier banks. GroupWise, PSCBs and LPBs contributed all the
increase in NPLs of the system. Particularly, NPLs of LPBs increased by Rs16
billion, representing 76 percent of the total increase. Increase in cash recovery and
loan written-off have also to some extent restrained growth in NPLs.
The surge in NPLs was primarily in doubtful and loss categories. Decrease in NPLs in
OAEM and substandard category show some let up in the influx of fresh NPLs,
observed in last two quarters. A significant increase of Rs20 billion took place in loss
category. As a result, share of NPLs in first three categories decreased by 3
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percentage points to 42 percent, though still above 33 percent a year ago. With
substantial amount of NPLs in substandard and doubtful categories (39.7 percent),
banks still face a risk of additional loans losses and constrained earnings ahead.
With increase in NPLs and transition of NPLs into higher provisions classification
categories, the provisions increased by Rs16.8 billion. This increase in provisions
almost matched Rs18.6 billion increase in NPLs. Further analysis show change inshare pattern of general and specific provisions. Banks held 84 percent and 16
percent specific and general provisions respectively in Dec-07, which came down to
93 and 7 percent in Jun-09. The decline in general provisions seems to have resulted
from higher specific provisioning requirements and utilization of some of the general
provisions to provide for specific provision over the last two years. Further, the
decrease in consumer portfolio, which involves mandatory general provision, has also
reduced the general provisions12.
Improved provisions, which almost matched increase in NPLs, led to a marginal
increase of 2 percent in net NPLs (48 percent increase in Mar-09). Conservativeapproach of the banks towards utilization of FSV benefit 13 has decelerated growth of
net NPLs; a number of banks are either not taking any benefit or utilizing partial FSV
benefit. Further, up gradation of some NPLs to performing status has limited the
increase in net NPLs.
Increase in advances, deceleration in NPLs and compatible growth in loan loss
provisions, marginally improved the asset quality indicators. NPLs to Loan ratio of
the banking system remained at previous quarterµs level. The ratio increase for
LPBs by only 10 bps to 9.8 percent, while it increased by 90 bps for foreign banks.
Due to the factors highlighted earlier, NPLs to loans ratio (net) witnessed over the
quarter declined of 13 bps to 3.7 percent. The ratio increased for FBs by 7 bps,
remained at previous quarterµs level for LPBs and decreased for rest of the banking
groups.
As increase in provisions largely offset the increase in NPLs which improved the
NPLs coverage ratio to 70 percent in Jun-09. Encouragingly, provisions to NPLs
increased after showing decline for last 5 quarters. Minor increase in net NPLs and
improved capital position of the banks have also improved the capital impairment
ratio; the ratio declined by 60 bps to 19 percent in Jun-09.
Overall trend in asset quality is observable in Segment analysis of NPLs. Increase in
infection ratio has subsided for almost all segments while decreasing for a couple.
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Financial Position of Scheduled Banks: Incorporated outside Pakistan:
( End Dec. : Thousand Rupees)
Financial Position Barclay Bank Plc.2008
ASSETS:
Cash & Balances With Treasury Banks 1,609,550
Balances With Other Banks 392,032Lending To Financial Institutions 1,485,808Investments - Net 9,332,849
Advances - Net 9,679,474Other Assets 322,459
Operating Fixed Assets 1,381,260
Deferred Tax Assets 398,188
TOTAL ASSETS:
24,601,620
LIABILITIES:
Bills Payable 256,590
Borrowings From Financial Institution 2,476,155
Deposits And Other Accounts 14,557,453Sub-ordinated Loans -
Liabilities Against Assets Subject To FinanceLease
-
Other Liabilities 979,429Deferred Tax Liabilities -
TOTAL LIABILITIES: 18,269,627
NET ASSETS: 6,331,993
REPRESENTED BY:Share Capital 7,139,900
Reserves -Unappropriated Profit (809,414)Surplus/Deficit On Revaluation Of Assets 1,507
TOTAL:
6,331,993
OPERATING POSITION:
Mark-Up/ Return/Interest Earned 832,665Mark-Up/ Return/Interest Expenses 335,338
Net Mark-Up / Interest Income 497,327
Provisions & Bad Debts Written Off Directly 33,841
Net Mark-Up / Interest Income After Provision 463,486
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Fees, Commission & Brokerage Income 16,491
Dividend Income -Income From Dealing In Foreign Currencies 11,764
Other Income 260
Total Non - Markup / Interest Income 28,515
Administrative Expenses 1,700,315Other Expenses 100
Total Non-Markup/Interest Expenses 1,700,415
Extra ordinary/unusual Items (to be specified) -
PROFIT/ (LOSS) BEFORE TAXATION (1,208,414)
Taxation - Current -- Prior Years -
- Deferred (399,000)PROFIT/ (LOSS) AFTER TAX (809,414)
Net Cash Inflow / (Outflow) from OperatingActivities
5,675,423
Net Cash Inflow / (Outflow) from Investing
Activities
(10,813,562)
Net Cash Inflow / (Outflow) from Financing
Activities
7,139,900
Number of Employees 1,431
Citibank N.A.
( End Dec. : Thousand Rupees)
Financial Position Citibank N.A.
2005 2006 2007 2008
ASSETS:
Cash & BalancesWith Treasury
Banks:
8,383,947 5,881,934 7,729,935 10,583,830
Balances With
Other Banks
729,186 539,516 192,370 7,358,861
Lending To
Financial
Institutions
4,796,504 6,267,405 4,530,449 14,166,060
Investments - Net 19,845,100 21,937,387 21,276,196 9,194,307Advances - Net 39,163,339 51,289,271 49,068,211 41,856,749
Other Assets 2,641,794 3,357,063 7,051,616 13,432,726
Operating FixedAssets
340,656 1,186,499 1,420,645 1,474,167
Deferred Tax
Assets
573,115 828,544 1,199,429 3,585,127
TOTAL ASSETS 76,473,641 91,287,619 92,468,851 101,651,827
LIABILITIES
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Bills Payable 1,436,826 1,212,275 2,120,612 1,660,227Borrowings From
FinancialInstitution
12,612,553 15,409,454 5,977,312 3,152,988
Deposits And
Other Accounts
53,115,538 63,103,884 68,627,815 65,484,768
Sub-ordinatedLoans
- - - -
Liabilities Against
Assets Subject To
Finance Lease
- - - -
Other Liabilities 3,603,014 5,533,500 9,417,201 22,340,772
Deferred TaxLiabilities
- - - -
TOTAL
LIABILITIES
70,767,931 85,259,113 86,142,940 92,638,755
NET ASSETS5,705,710 6,028,506 6,325,911 9,013,072
REPRESENTED BY:
Share Capital 3,742,948 3,794,244 5,443,260 7,742,345Reserves - - 46,784 75785
UnappropriatedProfit
2,007,769 2,274,831 889,238 1,689,600
Surplus/Deficit On
Revaluation Of Assets
-45,007 (40,569) (53,371) (494,658)
TOTAL 5,705,710 6,028,506 6,325,911 9,013,072OPERATING
POSITION
Mark-Up/
Return/InterestEarned
5,635,170 9,017,327 10,553,668 9,943,656
Mark-Up/
Return/InterestExpenses
2,035,755 4,113,089 5,071,332 4,144,702
Net Mark-Up /
Interest Income
3,599,415 4,904,238 5,482,336 5,798,954
Provisions & BadDebts Written Off Directly
626,950 955,209 2,655,460 4,058,001
Net Mark-Up /
Interest Income
After Provision
2,972,465 3,949,029 2,826,876 1,740,953
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Fees, Commission
& BrokerageIncome
1,804,183 1,648,434 1,523,529 1,358,752
Dividend Income - 8,995 - -Income From
Dealing In
ForeignCurrencies
451,897 427,746 855,162 2,142,938
Other Income 336,671 589,435 755,133 44,357
Total Non -
Markup /
Interest Income
2,592,751 2,674,610 3,133,824 3,546,047
Administrative
Expenses
2,962,639 4,053,108 4,807,138 5,127,991
Other Expenses 8,687 (4,630) 22,623 40,160
Total Non-Markup/Interest
Expenses
2,971,326 4,048,478 4,829,761 5,168,151
Extra ordinary/unusual Items (to be specified) -
PROFIT/ (LOSS)
BEFORE
TAXATION
2,593,890 2,575,161 1,130,939 118,849
Taxation - Current 1,221,374 1,332,650 1,330,644 1,466,568- Prior Years - (141,594) (95,394) -
- Deferred (135,738) (261,169) (363,992) (2,148,081)
PROFIT/ (LOSS)
AFTER TAX
1,508,254 1,645,274 259,681 800,362
Net Cash Inflow /
(Outflow) from
Operating
Activities
11,239,293 5,004,128 (2,849,659) (1,086,131)
Net Cash Inflow /
(Outflow) from
Investing
Activities
(17,009,678) (3,940,415) 3,768,274 9,254,001
Net Cash Inflow /(Outflow) from
Financing
Activities
(1,950,756) (1,384,718) (10,274) 2,305,074
Number of
Employees
3,154 4,077 3,766 2,415
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Role of Foreign Banks:
Increase in Foreign Investment.
Increase in Value added services.
Increase in Business Opportunities.
Increase in Country GDP.
Increase in Government Tax.
Increase in Employment.
Strongness of Banking System.
Increase in Competition.
More Funds Available to Producers.
High GNP.
Per Capita Income is Also High.
Technological Improvements.
Better Fund Management
Increase in Foreign Exchange Reserves
Increase in Credit Limit
Opening of New Projects
Better Industry Averege
Increase in Foreign Investors
Economical Improvements
Increase inBusiness Activity
Increase in Foreign Trade etc
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