The Pakistan Association of Large Steel Producers (PALSP) requested the State Bank of Pakistan (SBP) to compensate importers who were overcharged by banks in opening Letters of Credit (LC) at higher spot rates, making windfall profits in the process.
In a letter addressed to the SBP governor, PALSP raised its concerns over the issue that has left the steel industry struggling to survive in this economic downturn.
The SBP had recently observed that banks were involved in overcharging importers for opening LCs, said Wajid Bukhari, Secretary General PALSP.
“Although banks have discretion over the issuance of LCs, the SBP regulates them to determine the rate of exchange at which LCs work,” he said. The SBP took regulatory action against the alleged banks for manipulating the market and making windfall profits at the cost of our struggling industries, he added.
The letter further stated that the said exchange rate manipulation impacted the industry tremendously, causing losses amounting to millions of rupees in the span of just one quarter. The steel industry, which was already facing a severe liquidity crunch, was forced to shut down productions as they were unable to break even. This was a huge blow to the national economy as well, said the association.
Requesting SBP to constitute a committee to evaluate the financial impact caused by the malpractice and alleged manipulation by the banks involved, PALSP said, “From the fines being collected for the aforementioned offences, the SBP is requested to appropriately compensate the business community and steel industry in particular.
Speaking to the Express Tribune, Arif Habib Commodities CEO Ahsan Mehanti said, “Banks have been speculating over the rupee parity at the expense of the nation and that has caused losses to the steel industry as well. LCs opened at higher amounts than the spot rates, went unchecked and the involved banks need to be penalised, besides paying compensation.”
“The volatility in the exchange rate and opening LCs at a higher dollar rate than the spot market can really increase the cost of finished steel products. The steel industry imported scrap as raw material to produce these finished steel products, which contributes more than 50% in overall cost, said Muqeet Naeem, Steel Sector Analyst at Ismail Iqbal Securities.
The President of the Pakistan Businesses Forum (PBF), Mian Usman Zulfiqar said, “SBP being a regulator should take strict measures in order to restrict banks from insider trading, along with identifying the cartel of banks, investments funds, and leading business people involved.
The Employers Federation of Pakistan President, Ismail Suttar added, “The demands laid out by PALSP cannot be met by SBP as the central bank is a regulatory body in charge of regulating banks. SBP itself declares that it does not award damages or compensation against the breach of contractual obligations of customers”
Published in The Express Tribune, November 23rd, 2022.
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