Read the following article and answer the questions below.

SITUATIONER: BANK TREASURER: THE KEEPER OF THE TEMPLE KARACHI: With 20,795 permanent employees, Habib Bank Ltd (HBL) grew its pre-tax profit to Rs53 billion in 2020, up 83.6 per cent from a year ago. If you find the runaway profitability in a year of economic contraction and pandemic surprising, sit up and read this: only 48 staffers brought in pre-tax earnings of Rs30.7bn. It means just 0.2pc of the employees generated 58pc of the profit-before-tax for Pakistans largest commercial bank last year. The department in which these 48 prized bankers weave their financial spells is called the treasury. Of the nine money-making segments within the bank, the treasury accounted for the biggest bucks and the lowest relative expenses in 2020. Dawn recently sat down with Risha Mohyeddin, HBLs head of the global treasury, to understand the job of a bank treasurer. We do balance-sheet management. We analyse and predict for the future, says Mr Mohyeddin, who became head of the treasury at a global bank in Pakistan in 1995 and has worked in similar roles in a number of local and international institutions since then. The basic function of a bank is to collect deposits and loan out money while paying or charging a fee. But the unpredictability of inflows and outflows makes the whole process risky and complex. If the bank was a well with liquidity flowing in and ebbing away every day, the treasury would be its wellhead. Itd be the valve that ensured the well didnt run dry or overflow with liquidity on any given day. Its becoming more and more science and less and less judgmental, he says. As an example, he mentions that banks get a sudden jump in deposit inflows at the end of every quarter for systemic reasons. Its the job of the treasury to plan in advance and put those funds to immediate use. Otherwise, banks lose money on idle funds in the form of opportunity cost or forgone benefit. Similarly, investing too liberally can make banks run short of liquidity a phenomenon last witnessed in the 2008 global financial crisis that was mainly borne out of the poor composition of banks balance sheets. They had too much money tied up in investments that went bad all at once. Our job is to know seasonal and other trends, and understand each liability, each asset and how those move through the system, he says.

In short, the treasury guarantees that nobody eats tomorrows jam today while ensuring that no one goes to bed on an empty stomach either. Over the years, however, the treasury has evolved from basic balance-sheet management to include various market- facing functions like foreign exchange and bond trading. Banks (in Pakistan) have not fully bifurcated their trading and ALM (asset-liability management) books yet, according to Mr Mohyeddin. A typical treasury desk in Pakistan has 20-odd instruments to invest in, he says. Pakistan Investment Bonds, treasury bills, sukuk, repos, reverse repos, foreign exchange ready market, swaps and forwards, interest-rate swaps, cross- currency swaps, equity spot and futures, margin financing and international bonds are some of the instruments bank treasuries usually invest in. We want to be (trading) in the market all the time. Its almost our duty to be out there making markets, he says in response to a question whether bank treasuries trade frequently and why. More than half of HBLs balance sheet consisted of investments in 2020. They amounted to Rs1.9 trillion, up 41.2pc from a year ago. Markets will become illiquid and dysfunctional unless banks like ours are willing to step up. Its important not just for market integrity but also for ourselves, he says. HBLs balance sheet is the Fort Knox of Pakistani capital. The bank is the largest buy-side player in the bond market, thanks mainly to a 14pc share in the countrys total deposits. Almost 69pc of those deposits constituted its investment portfolio at the end of 2020. Its holdings of federal government securities alone amounted to more than Rs1.7tr. Big banks like HBL expect more activity soon as the federal government moves to permanently end its bilateral borrowing from the central bank. The State Bank of Pakistan (SBP) will soon be barred from buying government securities directly from the finance ministry. This will open up further space for a handful of primary dealers, including HBL, to take larger part in federal debt auctions. Our activity will go up. It wont mean well hold more. Itll mean that well buy and distribute more. The SBP will then have to come to the market to buy if it wants to fund the government, he says. What makes a good treasurer? Therere three specific qualities that, Mr Mohyeddin says, make a good treasurer. One, the person should be very quick with numbers. They should be able to scan the bond yields the way someone might fill out a Sudoku puzzle. Two, they should be able to synthesise complex information and explain it to someone in everyday language within no time. And three, they should be thick-skinned. A wuss has no place in the treasury bullpen. Someone who dwells on the unpleasant and gets flustered isnt a good fit. You cant be too sensitive to criticism. You make a bad trade, you put it behind you, pick yourself up and move on, he says. Does it mean all treasury desks are packed with cultural clones with similar temperaments and educational backgrounds? No. I think theres a lot of value in having diversity. But it takes a certain type of person, someone who gets turned on by markets going up and down. Ill gladly hire English majors as long as the other qualities are there. Mr Mohyeddin lacks the conventional pomposity of the haughty dude-bros of finance. He takes after his father, veteran actor Zia Mohyeddin, in his refinement in manner and speech. He talks in the halting style of an academic with a hint of self-deprecating wit. A little bit of humility goes a long way. Markets will burn you if youre too cocky.

Value to society Mr Mohyeddin says performance varies significantly among different bank treasuries. They dont mimic each others strategies to achieve similar returns. A good treasurer squeezes the last tenth of a percentage point from a buck the same way a miser insists on squashing an almost empty toothpaste tube. Decisions you take, how you manage the book, it makes a huge difference, he says, adding that even a few basis points make a sizeable impact on the bottom line when you run a one-and-a-half-trillion-rupee book. Going by the profit-and-loss statement, members of the treasury are surely the most valuable human resource for a bank and its shareholders. But what value do they bring to society? Who would come ahead if one was to stack the value of a treasurer to society against that of a basic health worker or a primary schoolteacher? I dont have a first-order impact. But I have a second- and third-order impact. If I make money, the bank makes money, we pay more taxes, and taxes are used for hospitals and schools and social causes,

Question 1: i) Name types of financial markets a banks treasury is linked to? How each of these financial market help banks make profit? (6) ii) What factors affects financial market stability? How does banks treasury help bring stability to financial markets? (5) iii) What is your critique on the above article? (4)