AGP chides SBP for imposing just Rs290m penalty on banks behind Rs100bn ‘manipulation’

ISLAMABAD: The State Bank of Pakistan (SBP) imposed only 0.29% fine of the unjustified profits of Rs100 billion on eight commercial banks, who were involved in manipulating the forex market.

Not only this, the State Bank of Pakistan is also found involved in unjustified disbursement of loans under the export finance scheme to an exporter who was penalized for 52 times for different loans cases due to misreporting/incorrect reporting/nonshipment/delay in repayment/short shipment etc.

In its recently published report of the Federal Government for the audit year 2023-24, the Auditor General of Pakistan revealed that during the audit of State Bank of Pakistan, it was noted that during the year 2022, news circulated that commercial banks allegedly made unjustified profits of Rs100 billion by manipulating the forex market.

“Up to June, 2022, around 8 commercial banks were identified to have made exorbitant profits by exploiting the rupee fluctuation against the dollar and through huge spreads between the open market and interbank rates,” said the audit report. It added that SBP being a regulator penalized these banks by imposing a penalty of Rs290 million. The penalty was just 0.29% of the alleged forex manipulation. However, a detailed record on the matter was not provided to the audit.

“Audit is of the view that involvement of commercial banks in forex manipulation affected local currency rupee depreciation and reflected weakness of the internal controls. The matter was reported to the management in June, 2023. The management in its reply stated that this pertained to regulatory functions of the Bank and was beyond the scope of AGP audit,” the report said, adding, “The reply was not tenable, as it was irrelevant. Audit recommends stronger regulations and oversights by SBP, fact-finding and provision of detailed records to audit on the subject matter.”

In another case, the audit report disclosed that during the audit of the SBP’s Banking Services Corporation, Islamabad for the years 2020-21 & 2021-22, it was observed that the management granted loan facility to the exporter M/s ……… via different authorized dealers/commercial banks. The exporter made different types of irregularities i.e. short shipment/late shipment, misreporting, delayed repayment etc. It was evident that the exporter was penalized 52 times for different loan cases due to misreporting/incorrect reporting/non-shipment/ delay in repayment / short shipment etc. despite the fact management continuously financed loans to the exporter under the subsidized scheme. Further, the rate of fines/penalties charged to the exporter were very nominal.

“Audit is of the view that despite repeated irregularities on part of the exporter, the SBP management continuously allowed export financing facilities. This shows favoritism and weak control over the affairs of export,” the audit report said, adding, “The matter was reported to the management on March 20, 2023. The irregularity was discussed in a DAC meeting held on December 06, 2023. DAC directed the management to revisit the policy of disbursement of loans to the exporters and issue warnings to exporters on non-compliance of SoPs. Audit recommends implementation of the DAC directives.”