Bankers slam decision to channelise funds from banks

KARACHI: Bankers on Tuesday feared a major dent on their deposits base as a result of the government’s decision to disallow its money to be parked into commercial bank accounts.

The government in a budget for 2019/20 fiscal year decided to create a treasury single account (TSA) to disallow its funds to be parked into commercial bank accounts.

Bankers said the move could be positive for the government as it would help it in fiscal management.

“However, it could affect liquidity position of banks and interest income,” a senior banker said, requesting anonymity. “The profitability and deposits of big five banks will badly be impacted. This will push down the banks’ deposits.”

The new mechanism is expected to be implemented from July 1.

Bankers said the decision aims at to consolidate funds into the central bank’s account and to ease borrowing from the State Bank of Pakistan (SBP).

An estimate showed the total government deposits with commercial banks stand at around Rs1.9 trillion or 13.7 percent of the banking industry’s total deposits. Of that, Rs0.9 trillion belongs to the federal government. Bank of Khyber has the highest government deposits that make up 63 percent of the bank’s total deposits, followed by Bank of Punjab (56 percent), Askari Bank (33 percent) and National Bank of Pakistan (29 percent), according to a report from brokerage Topline Securities.

The government said commercial banks held an estimated Rs1.4 trillion of its deposits by end of the last year.

“This reflects a clear case of lack of oversight of public finances,” the government said in a roadmap for stability and growth. “These (bank) accounts of the public agencies are not linked to the TSA and while these amounts are reflected in SBP reports, they remain outside the fiscal reporting framework of the government.”

The government said some of the monies are due to leakages from the fiscal management system and are reported as expenditure in the past fiscal reports “thus showing a larger than actual fiscal deficit”.

“Moreover, these accounts adversely impact government’s cash management and audits of public expenditure,” it added.

The new budget also unveiled a plan to refrain from availing the lender of last resort’s facility in an effort to tame inflation.

“Government borrowing from the State Bank is inflationary,” Minister of State for Revenue Hammad Azhar said in a budget speech. “Our medium-term inflation target will be in the range of 5 – 7 percent.”

Bankers see issuance of refund bonds a positive development as it would improve liquidity of commercial banks.

“The tax refunds of billions of rupees of banking industry are pending, causing a significant drag on banks’ profitability,” Pakistan Banks’ Association said in a statement.

The government in the budget announced to issue refund bonds to facilitate the cash flow constraints of business concerns due to stuck income tax refunds. An income tax refund bonds might be issued by the Federal Board of Revenue’s (FBR) refund settlement company limited.

The FBR would issue a promissory note to the FBR Refund Settlement Company Limited incorporating details of refund claimants and the amount of refund payable to each claimant.

A similar model has been applied for sales tax refunds in the current fiscal year, which has successfully addressed the concerns of business community.

Bankers said the setup of a separate directorate to monitor cross-border currency movement would control the menace of money laundering The government decided to set up a new Directorate of Cross Border Currency Movement for focused enforcement against money laundering and currency smuggling to reflect the country’s commitment to fulfill action plan of the Financial Action Task Force.

Separate preventive collectorates have already been established in Karachi, Peshawar and Quetta to further strengthen drive against smuggling in the border areas.