Banks in Pakistan are forcefully converting conventional savings accounts to Islamic accounts in order to avoid paying high interest to depositors.
Branch managers that once managed to persuade customers to sign up for things like advance payments on mutual fund investments are now force-converting savings accounts into Islamic accounts. Some banks have gone as far as threatening account closure if the holder chooses not to take any action in 30 days.
Talking to ProPakistani, a prominent market expert said conventional savings deposits are required to receive a minimum deposit rate (MDR) which currently stands at 15.5 percent. It is linked to the SBP Floor Rate of 16 percent i.e. less by 0.5 percent.
He said Islamic savings are allowed to be ripped off and there’s no minimum payout. So most banks are trying to push for it.
Business seekers are on the lookout for a safety net and perhaps a few more residual dollars after paying for inputs on settlements to banks and expect proper treatment in exchange for their cash flow. On the other hand, banks want a shortcut by forcing account holders to convert and de-risk payments on credit for buyers both at home and overseas. They are trying whatever it takes to avoid paying high interest to depositors.
Banks like Habib Bank Limited (HBL) did it first. Standard Chartered (SC) is the latest entrant.
Open Threat
Standard Chartered has started issuing instructions to savings account holders to convert to Islamic Banking Savings Accounts. Its Saadiq Savings account is based on the Mudaraba principle where funds will be invested in Shariah-compliant assets.
But there is a catch and a pretty ugly one. Standard Chartered says the offer is valid for just 30 days (from the date of issuance of these instructions) and the bank says, “we may not be able to continue your relationship including but not limited to [the] closure of your account with the Bank”.
On one hand, the State Bank of Pakistan (SBP) talks about increasing financial inclusion and providing services to the unbanked, but now, as a result of its complicated policies, banks making record profits by lending to the government of Pakistan are now attempting to shaft customers by forcing them to convert to Islamic accounts or closing their accounts, especially when inflation is high and consumers need every bit of interest income in this highly inflationary environment.
The bank’s record profits demonstrate that paying interest to depositors has no negative impact on the bank’s bottom line, but on the surface, they don’t want customers/investors to truly believe that.
There’s hope any collateral in the senior age groups will be avoided, but some have suggested the forced conversion could easily fool unsuspecting widows or pensioners. “Bancassurance 3.0, this may get ugly for some,” a former SBP executive commented earlier today.
Money Crunch Forcing Banks to Play it Dirty
From the looks of it, our banks first wanted to get rid of savings deposits by raising interest and tax rates when the money crunch first started in 2022. We can expect an extra set of stringent policies for minimum deposit rate (MDR), while even higher tax rates on the Advances to Deposit Ratio (ADR) may be in the works at SBP.
While horribly against the spirit of the banking business, disproportionate taxes on income from government securities and a low ADR ratio might be forcing banks like SC to force conversion to Islamic banking. That’s actually quite fair since taxation is irrational and the central policy on Islamic banking payouts is bonkers/nonexistent.
Banks are punished for lending to the government when it is most in need of funds; taxes are one way, and the unwanted spotlight is the other. This compels banks to liquidate deposits rather than mobilize them and hence this might be the reason why big banks are forcing their savings account holders to make a switch.
Overall, this hardline approach by banks is nothing more than a marketing ploy to make more money. Branch managers may push for the switch, but it is not mandatory. It’s best to ignore them and stay put.
Haram khor banks vs. Haram khor consumers!
What you would eat if you have choice??????? Eating USA/Australia’ s cow 🐄 or Donkey slaughtered by our Muslims Islamic banks🤣🤣🤣🤣🤣.
Actually this is the catch here. Islamic banking is just a gimmick. Why not bank give Islamic loan to startups? They only give equivalent loan to tangible goods to safeguard themselves not public. Because they know people cannot question anything name Islamic and they can violate all Islamic teachings under this umbrella.
During this Hybrid Bajwa-Bilawal-Shahbaz regime, everything will be against the common person