SBP slaps Rs98mln fines on four banks

KARACHI: The State Bank of Pakistan (SBP) has slapped fines of Rs97.6 million on four top banks in the first quarter of the year for failing to comply with the regulatory instructions, it said on Friday.

“These actions are based on deficiencies in the compliance of regulatory instructions and do not constitute a comment on the financial soundness of the entity,” the SBP said in a statement.

The four banks were fined for failure to comply with the regulatory instructions related to foreign exchange and general banking operations, customer due diligence and anti-money laundering, according to the central bank.

Pakistan has been on the Financial Action Task Force’s (FATF) grey list for deficiencies in its counter-terror financing and anti-money laundering regimes since June 2018.

In February, the FATF kept Pakistan on its ‘grey list’, with the country’s status set to be reviewed next at an extraordinary plenary session in June. Pakistan has so far implemented 24 out of 27 points of the FATF roadmap.

Ratings agency Moody’s maintained stable outlook for Pakistani banks. “Pakistan’s banks face slow economic recovery, but solid funding and liquidity underpin stable outlook,” Moody’s said in a report in January.

Moody’s expects the slow economic recovery to affect loan quality, with nonperforming loans expected to rise over the coming months from a sector-wide level of 9.9 percent of gross loans in September 2020.

“Banks’ foreign operations, export-oriented industries and companies reliant on government payments and subsidies will be hit hardest, but loan repayment holidays and other government support measures should help contain some risks,” it said. “Meanwhile, banks’ profitability, which has materially increased during 2020, will come under pressure on lowered margins, higher loan-loss provisions given the challenging operating environment, and subdued business generation.”

Apart from the penal action, the central bank advised these four banks to strengthen its processes with respect to identified areas.

One of these banks was advised to conduct an internal inquiry on breaches of regulatory instructions and take disciplinary action against the delinquent officials. Another was advised to strengthen its processes to avoid recurrence of such violations.

The banking is well capitalised entering the crisis and \financial sector indicators appeared sound as of December 2020. The average capital adequacy ratio stood at 18.6 percent.