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Banking sector expects boost as FATF decision looms

By Erum Zaidi
June 24, 2021

KARACHI: Pakistan’s banking sector is expecting further ease in restrictions from international financial markets as the global money laundering watchdog is to take a decision about the country’s compliance, bankers said on Wednesday.

“If Pakistan remains in the grey list, it still reflects somewhat positively as it suggests Pakistan is moving towards a fully compliant regime while steering clear of the black list,” said a banker.

“Credit wise, markets reflect the status quo so there aren't any adverse implications expected. The focus remains on progressing towards exiting the grey list to ensure Pakistan can emerge as a stronger and economically/financially responsible country which can contribute significantly to global markets.”

The Financial Action Task Force (FATF) will announce its future course of action on Pakistan’s action plan after the conclusion of its plenary meeting on 25 June (tomorrow). The country has already implemented 26 out of 27 conditions to curb money laundering and terrorist financing.

“Removal from the FATF's grey list will be credit accretive for Pakistan, as it affirms Pakistan's compliance with globally endorsed best practices,” said a head of treasury and financial institution at a leading bank.

“Markets are expected to digest this development positively, and this will reflect across the global financial space - credit spreads on Pakistani debt may tighten, trade markets previously unwilling to deal with Pakistan may begin opening up, access to foreign currency liquidity will shore up. This can spur lasting economic growth through increased exports in new markets (capacity expansion is already underway), introduction of new trading and financial partners i.e. more favourable terms in banking relationships, increased inflow of FDI.”

There is an increasing optimism among analysts and financial industry watchers that the economic recovery will also gather more steam if Pakistan is out of the grey list soon.

A positive outcome from the FATF plenary hearing will help ease restrictions from global financial markets as well as help increase trading partners, according to a bank executive.

Additionally, as the economy benefits from the expected enhanced access to more trading markets and flow of foreign funds into the country, the banking sector will play a pivotal role in credit off-take for various sectors and the facilitation of trade payments / commercial activity, a bank’s executive said.

FATF had placed Pakistan on its “grey list” of countries lacking controls over money laundering and terrorism financing in 2018. In February, the FATF put the country on grey list and under increased monitoring till June, saying Pakistan needed to fully address 3 out of 27 points from the FATF action plan related to effective investigation and prosecution in relation to terrorist financing.