The Central Bank of Pakistan has fined five commercial banks Rs 57.8 million for violating rules and regulations during the quarter ended December 31, 2021.
Citing the nature of the breach committed by the banks, the central bank said they had committed “a breach of regulatory instructions relating to general banking”.
The State Bank of Pakistan (SBP), however, did not mention the specific violation committed by each of the five banks, which it used to share in previous reports.
In addition to the criminal action, the five banks have been asked to strengthen their processes with respect to the identified areas, SBP said in a brief report titled “Details of Significant Enforcement Actions Taken by SBP During the quarter ended December 31, 2021″.
The central bank said the breaches had nothing to do with their financial indicators. “These actions are based on deficiencies in compliance with regulatory guidance and do not constitute commentary on the financial strength of the entities,” he said.
The breakdown suggests that the SBP imposed a financial sanction of Rs 11.045 million on a foreign bank which had been operating in Pakistan for decades.
He charged one of the five major banks with 10.26 million rupees for breaching the instructions. The remaining three banks, which were also well known for having nationwide operations, were fined in the range of 10.3 million rupees to 11.684 million rupees, according to the SBP.
In its previous “Significant Enforcement Actions” report, the central bank mentioned that some of the commercial banks violated regulations relating to money laundering, suspicious transactions and foreign exchange-related transactions.
In addition, some banks have been negligent in collecting account holder information at the time of account opening under a process known as Know Your Client (KYC).
Previously, the SBP had advised financial institutions to train their staff to manage new emerging banking practices to avoid repeat violations.
Currently, more than three dozen banks are operating in Pakistan. These include sharia-compliant, conventional and microfinance institutions.
Their outstanding deposits stood at 21 trillion rupees as of December 31, 2021. They have increased by 17% over the past year, with deposits standing at 17.87 trillion rupees a year ago as of December 31 2020.
Banks’ loans to governments – for budget financing – jumped 22% year-on-year to Rs 14.1 trillion as they invested heavily in risk-free sovereign debt securities like treasury bills and bonds of Pakistan’s investment (GDP) at the end of December 2021.
Credits (advances) to the private sector jumped 19% year-on-year to reach Rs 10.1 trillion as of December 31, 2021.
Thus, the banks’ investment-to-deposit ratio (IDR) stood at 67%, while the advance-to-deposit ratio (ADR) was recorded at 48% as of December 31, 2021.
Bank deposits rose sharply in the wake of the acceleration in economic activities. In addition, overseas Pakistanis send a significantly higher amount of remittances to family members and friends in the country.
Published in The Express Tribune, February 9and2022.