Senate Committee Criticizes SBP Over Rs65 Billion Bank Profits

In a recent meeting, the Senate’s Standing Committee on Economic Affairs expressed strong discontent with the State Bank of Pakistan (SBP) for its perceived inaction regarding commercial banks that allegedly profited unlawfully to the tune of Rs65 billion. This situation arose during a critical foreign exchange crisis in 2022, when banks reportedly imposed unauthorized higher charges on letters of credit (LCs) for imports. The committee, led by Senator Saifullah Abro, sought clarity on the profits made by these banks and demanded accountability from the SBP.

The committee's inquiry highlighted serious concerns about the banking sector's practices during a time of economic distress. Senator Abro pointed out that the then Finance Minister Ishaq Dar had acknowledged the banks' "unreasonable" foreign exchange earnings and had called for an investigation. However, the SBP's response, which included fines totaling Rs1.4 billion for the involved banks, was deemed insufficient by the committee members, especially considering the massive profits reported.

During the meeting, the committee requested a detailed report from the SBP regarding the issuance of LCs from April to September 2022. They wanted this information presented in a clear format, including the names of the banks, the amounts involved, the dollar rates on those days, and any actions taken by the central bank. Senator Kamran Murtaza criticized the SBP for its leniency, arguing that a mere Rs1.4 billion penalty was grossly inadequate compared to the Rs65 billion in profits.

Furthermore, the committee raised questions about the SBP's acknowledgment of the alleged losses. Despite the finance minister's previous statements, SBP officials seemed reluctant to accept the claims of a Rs65 billion loss. Senator Abro insisted that the central bank must provide comprehensive details to the committee within two weeks. The discussion also touched on the Federal Board of Revenue's (FBR) imposition of a 10% foreign exchange income tax, which banks have contested in court.

In addition to the banking issues, the committee reviewed ongoing water sector projects worth $2.84 billion, which are being funded by multilateral development partners. The total disbursement so far stands at $705.62 million. The committee was informed about the Tarbela Dam’s fifth Extension Hydropower (T5HP) project, which has been operational for 90 days and is expected to be completed in three phases by 2026.

The committee's discussions underscored the need for better monitoring of projects funded by international partners. They unanimously agreed that the Economic Affairs Division should establish a dedicated desk, led by a technical expert, to enhance oversight of these projects.

The Senate committee's scrutiny of the SBP and commercial banks reflects a growing demand for transparency and accountability in Pakistan's financial sector. As the country navigates economic challenges, it is crucial for regulatory bodies to act decisively against any malpractice to restore public trust and ensure fair practices in banking. The ongoing discussions and investigations will be pivotal in shaping the future of economic governance in Pakistan.