Finance Ministry is Deliberately Delaying Action Against Banks Manipulating Exchange Rates

Despite clear cases of charging ‘higher spreads,’ the Ministry of Finance has been sitting on the State Bank of Pakistan’s (SBP) review against commercial banks in a foreign currency manipulation case, stalling their punishment.

Despite Finance Minister Ishaq Dar’s repeated promises to levy heavy taxes on commercial banks for allegedly making exorbitant profits ranging from Rs. 25 billion to Rs. 50 billion by manipulating the value of the rupee against the US dollar, the action against at least eight commercial banks has been delayed, reported Express Tribune.

SBP informed the Senate Standing Committee on Finance on Wednesday that on December 27, 2022, the central bank conducted a limited-scope probe against banks and submitted its report to the Finance Division. It briefed the committee, “It was observed that the overall increase in foreign exchange (FX) income of the banks was mainly driven by higher spreads due to heightened volatility, however, in some cases, the banks charged higher spreads”.

Despite observing that commercial banks were overcharging, the SBP’s response to the committee gives the impression that the central bank was not in the mood to take any immediate decisive action against them.

No action has been taken against the banks despite the evidence, and clearly shows that the federal government and central bank were purposefully delaying action against the banks. The federal government had an opportunity last month to impose additional taxes through a mini-budget that it claimed to impose, but nothing happened.

Additional Secretary of Finance Amjad Mehmood commented during the committee session that the federal government is proceeding with caution because any action will have an impact on the banking industry.

SBP’s Executive Director Arshad Mahmood Bhatti told the Senate panel that there was a limited supply of dollars and importers were chasing the limited supply, but banks went beyond logical spread.

Neither the SBP representative nor the Additional Secretary of Finance, Amjad Mehmood, provided a firm date for imposing penalties on the banks. The SBP was in the process of levying penalties against the banks but the charges were put on hold because the federal government was considering using a fiscal option with regard to the banks’ high FX earnings, the committee was informed.

The SBP brief mentioned that on 21st March it sought clarification from the Ministry of Finance regarding the fiscal option. The central bank is of the view that if the government does not intend to proceed with the fiscal option, SBP will initiate action in accordance with its supervisory framework.

It bears mentioning that the central bank told the Senate Standing Committee on Finance in September last year that show-cause notices had been served to the National Bank of Pakistan, Allied Bank Limited, Bank Al Habib, Standard Chartered Bank, Meezan Bank, Habib Bank Limited, HabibMetro Bank, and United Bank Limited.

These banks charged higher dollar rates to importers on some of the transactions and made substantial profits. SBP caught them red-handed then, but authorities have so far failed to deliver punishment.



Get Alerts

Follow ProPakistani to get latest news and updates.


ProPakistani Community

Join the groups below to get latest news and updates.



>