SBP penalises five commercial banks
According to the first estimates, real GDP grew by 2.1% year on year in the first quarter of FY24, compared to 1% in the same quarter last year. PHOTO: FILE
Pakistan’s central bank has slapped a penalty of Rs57.8 million on five commercial banks for violating rules and regulations during the quarter ended December 31, 2021.
Citing the nature of the offence by the banks, the central bank said that they committed “violation of regulatory instructions pertaining to general banking operations.”
The State Bank of Pakistan (SBP), however, did not mention the specific violation committed by each of the five banks, which it used to share in previous reports.
In addition to the penal action, all five banks have been advised to strengthen their processes with respect to the identified areas, said the SBP in a brief report titled “Details of Significant Enforcement Actions by SBP during the Quarter ended December 31, 2021”.
The central bank said that the violations had nothing to do with their financial indicators. “These actions are based on deficiencies in the compliance of regulatory instructions and do not constitute a comment on the financial soundness of the entities,” it said.
The breakdown suggests that the SBP imposed a financial penalty of Rs11.045 million on a foreign bank that had been operating in Pakistan for decades.
It charged one of the top five banks Rs10.26 million for violating the instructions. The remaining three banks, which were also well known for having nationwide operations, were fined in the range of Rs10.3 million to Rs11.684 million, according to the SBP.
In its previous “Significant Enforcement Actions” report, the central bank mentioned that some of the commercial banks violated the regulations related to money laundering, suspected transactions and transactions related to foreign exchange.
Besides, some banks showed negligence while collecting information related to accountholders at the time of account opening under a procedure called Know Your Client (KYC).
Earlier, the SBP advised financial institutions to train their staff in dealing with the newly emerging banking practices to avoid the repetition of violations.
At present, over three dozen banks are operating in Pakistan. These include Shariah-compliant, conventional and microfinance institutions.
Their outstanding deposits stood at Rs21 trillion by December 31, 2021. They grew 17% over the past one year as the deposits stood at Rs17.87 trillion a year ago on December 31, 2020.
Banks’ lending to the governments - for budgetary financing - jumped 22% year-on-year to Rs14.1 trillion as they invested heavily in the risk-free sovereign debt securities like T-bills and Pakistan Investment Bonds (PIBs) by the end of December 2021.
Credit (advances) to the private sector surged 19% year-on-year to Rs10.1 trillion on December 31, 2021.
Accordingly, banks investment-to-deposit ratio (IDR) stood at 67%, while the advances-to-deposit ratio (ADR) was recorded at 48% on December 31, 2021.
Bank deposits surged aggressively in the wake of acceleration in economic activities. Besides, overseas Pakistanis send significantly higher amount of remittances to their family members and friends in the country.
Published in The Express Tribune, February 9th, 2022.
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