Senate committee criticizes SBP for inaction on banks’ Rs65 billion illegitimate profits

ISLAMABAD: The Senate’s Standing Committee on Economic Affairs on Monday criticised the State Bank of Pakistan for laxness in going for punitive steps against commercial banks that gained a profit of Rs65 billion unauthorisedly through charges on letters of credit during the 2022 foreign exchange crisis.

Determined by Senator Saifullah Abro, the committee asked for details regarding banks’ profits from foreign exchange transactions and sought that the Economic Affairs Division formulate a special desk for monitoring foreign-funded projects. The committee also sought a comprehensive audit from the International Monetary Fund about its funds spent over the years.

Some noted the suspicions of unusual profits which emerged from inflated charges by banks for foreign exchange provision for LCs. The committee asked if SBP sought information of measures taken towards recovery of an additional Rs65 billion from the banks against the effect of over-invoicing of LCs during 2022.

Senator Abro has made a reference to the report of former finance minister Ishaq Dar who had, after being presented with unreasonable profits by the banks, ordered an investigation. SBP officials claim that fines totaling Rs1.4 billion have been imposed on the banks which are involved in the over-invoicing issue.

Senator Kamran Murtaza criticized the country’s central bank, the SBP, for imposing relatively meager penalties on the basis of profits earned to the tune of billions of rupees. Abro termed Rs1.4 billion fine as inadequate. He was not satisfied with the response of the SBP and warned that the matter would not be so easily dismissed.

The committee asked the SBP to present a detailed report on LCs issued from April to September 2022 citing bank-wise, amount-wise, along with exchange rates and actions taken. Senator Murtaza inquired whether the SBP was aware of their fault lines. “No role of the bank in malpractice,” officials responded.

The committee discussed the in-camera water sector ongoing projects amounting to $2.84 billion, out of which $705.62 million already faced disbursement. Representatives from Wapda attended a briefing on the fifth Extension Hydropower project of the Tarbela Dam and highlighted the status and future phases of the project.

The committee decided unanimously to invite the Wapda chief to the next meeting and decided that the Economic Affairs Division should create a dedicated desk for better project monitoring in cooperation with development partners and UN agencies.