Foreign exchange manipulation: Certain banks found guilty, SBP chief tells NA panel

ISLAMABAD: Governor State Bank of Pakistan (SBP) Jameel Ahmad Wednesday said the inquiry report against certain banks on account of foreign exchange manipulation had found variation in profits during a certain period.

He said there were two options i.e. to impose a penalty or take fiscal measures. The federal government was considering undertaking fiscal action, he said.

At one point during the meeting of the National Assembly’s Standing Committee on Finance, the Governor SBP said he preferred to keep the discussion on the manipulation of banks in exchange rate earnings as in-camera proceedings.

The committee chairman, Qaiser Ahmed Sheikh, gave a ruling for an in-camera meeting on the alleged currency manipulations. There were reports that eight banks earned profits of around Rs100 billion.

Minister for Finance Ishaq Dar and his team wanted to slap additional taxes under the concept of Windfall Tax but the sources quoted the Governor SBP as saying that the IMF had sternly opposed this move, so the government had to drop it on the occasion of recently-approved Finance Supplementary Act 2023.

In a written reply during the NA Standing Committee on Finance, the SBP stated that the heightened volatility/ uncertainty, short forex liquidity and short net open forex positions of the banks were the main reasons for charging higher spreads by the banks during the period from May to August 2022.

The SBP further stated that the banks gross FX income increased significantly in the first half (Jan-June) of 2022 as compared to 1st half of 2021. Allocation of additional income to various components of the FX business is quite difficult due to the complexities involved in their calculations and record keeping.

The SBP has conducted a limited-scope inspection and observed that the overall increase in FX income of the banks was mainly due to heightened volatility; however, in some cases the banks charged “higher spreads”.

In this regard, the SBP is in the process of taking enforcement action on the banks. In their meeting with banks, the SBP also warned them of their practices and advised them to rationalize their spreads being charged to the customers.

On import restrictions for opening the LCs, the committee chairman alleged that there were some under-the-table deals continuing and asked for placing some criteria for opening up LCs instead of handling it with discretionary powers.

The committee took up the issue confronted by a Chinese company which was eyeing to invest around $100 billion in the coastal areas of Balochistan. Their representatives informed the NA panel that they had purchased 25,000 acres of land in the coastal areas but there were different requirements of No Objection Certificates (NOCs), which they could not secure despite running from pillar to post. The Chinese company intended to establish a smart city in the coastal areas.

Also, the CCP was dysfunctional because four posts of members had been vacant for quite some time and only the chairperson of the CCP was performing.

Special Secretary Finance Awais Manzoor told the committee that the government had received 186 applications out of which 114 were short-listed. Now the minister for finance, along with a panel, is conducting interviews of dozens of eligible candidates for selection of four members of the CCP. The CCP Chairperson, Rahat Kaunain, informed the committee that the decisions against the powerful sector could not yield any results because they had secured stay orders from the courts.

When the committee chairman inquired her about the solution, she replied that the financial matters need to be prioritized as it took 10 years to get a hearing of the cases without getting any desired results.

During the discussion on the calling attention notice regarding the privatisation of House Building Finance Corporation (HBFC), the Special Secretary, Finance Division, told the committee that HBFC has always been in a loss and was put on the privatisation list five years ago.

He informed that State Bank of Pakistan (SBP) owned 90 percent of the corporation’s shares, while HBFC itself remained the owner of only 10 percent of shares. In the last period, the government waived off the debt amounting to Rs166.9 billion, he added.