October 18, 2002	Friday	Sha'aban 11, 1423

KARACHI, Oct 17: No bank can now keep a spread of more than 20 paisa per US dollar between the buying and selling rates of foreign currencies quoted for the public. The State Bank issued a circular (F.E. no 15) on Thursday to notify this decision.

Previously the maximum permissible spread was 50 paisa per US dollar — or its equivalent in other currencies.

The circular says that the margin has been reduced “to match it with the existing inter-bank market conditions” but it does not elaborate on it. It further says that the lowering of margin would not apply to inter-bank transactions.

“This is to ensure that the rupee does not fluctuate widely,” says country treasurer of The Hong Kong & Shanghai Banking Corporation Mumtaz Yousuf.

When the difference between the buying and selling prices of foreign currencies was set at 50 paisa per US dollar for the public the gap between the buying and selling prices in the inter-bank market used to be much wider than what it is now.

“So lowering of the spread seems to be in that direction.”

Foreign banks with small branch networks appear to have received the SBP directive with ease. But those with larger branch networks amongst them — and having a bigger customers base — feel otherwise. “The new spread is simply unmanageable,” says treasurer of a sizable foreign bank.

“Logistically this will create a huge problem,” he remarks.

And local banks mostly those with having very large branch networks are apparently disappointed by the State Bank decision.

“This will reduce our profits,” says senior dealer of one of the five major banks. “Our branches used to earn some profit by keeping the spread between the buying and selling rates of foreign currencies in the range of five paisa to forty paisa per dollar. Now the lowering of the margin would make them poorer.”

The SBP had set the spread of 50 paisa per US dollar between the buying and selling prices of foreign currencies in May 1999. This spread was meant for small transactions carried at branches level. At that time the spread between the buying and selling prices of foreign currencies in the inter-bank market used to be 10-12 paisa per US dollar. But now this has fallen to two paisa per dollar.

Dawn inquiries reveal that the banks — both local as well as foreign ones — have their own benchmarks for handling foreign exchange transactions at the branch levels. Treasurer of a big local bank said that his bank allows its branches to set rates for the transactions valuing up to $5,000. Treasurer of a foreign bank told Dawn that in his bank the benchmark is $15,000. In some other banks it is as high as $20,000. Bankers say that if the amount of foreign exchange being transacted at a bank branch exceeds the limit set by that bank the transaction has to be routed through its treasury. They say that big clients normally pay very little or negligible spread to the banks on buying and selling of foreign currencies. But the banks managed to earn a sizable spread (up to 50 paisa per dollar) from small customers at the branch level. The lowering of the spread is going to reduce their profit.

The foreign exchange transactions made at bank branches cover small home remittances or money sent back home from overseas Pakistanis; telegraphic and electronic transfers and transfer of money through drafts. People also go to the bank branches to buy a prescribed amount of foreign exchange for overseas travelling. They also send money abroad to cover medical or educational expenses of their wards and dependents staying outside Pakistan.