For foreign exchange companies the rules of the game have become tighter. But it has also helped the more disciplined among them to earn higher profits and remain afloat despite losing much of their core business — handling of home remittances — to banks.

In 2015, the overall profit of all 26 exchange companies rose by 24pc to Rs265m from Rs214m in 2014, according to the latest report of the State Bank of Pakistan. The subsidiaries of commercial banks managed to boost their profits faster than the others. HBL Currency Exchange and NBP Exchange Company earned Rs54m and Rs50.5m net profits against Rs41.7m booked by Paracha International Exchange, the highest profit-maker among those companies that are not owned by banks.

In 2016, too, bigger and more prudent exchange companies are doing well, sources in the SBP say, adding that it’s difficult to anticipate, however, if the aggregate profit of all exchange companies would increase further.


There are complaints that not all exchange companies are free to make agreements with global money transfer companies for handling remittances. Only two out of 26 are handling remittances under agreement with their foreign correspondents, and both are subsidiaries of banks


Information gathered from top five companies reveal they have seen a nominal rise in profit in the first quarter of the year. These companies had contributed more than half of last year’s aggregate profits of the entire sector. If that still serves as an indicator 2016 should also be a profitable year for forex companies, says a head of a forex company.

“A number of things made 2015 a turning point for the exchange companies sector,” says a senior official of the Exchange Companies Association of Pakistan. First, there was heightened discipline for them to follow, and enforcement of rules became stricter than before. This drew a dividing line between the good boys and the bad boys of the industry, enabling the former to do well and pushing the later to the sidelines.

In the backdrop of media reports that Pakistanis have parked $2.2bn funds in real estate markets in 2015, part of which had allegedly been smuggled out of the country, SBP had made reporting requirements of forex companies tougher. It had also asked them to stop sales of foreign exchange to individuals if they were unable to satisfy the companies about their personal identity and the purpose of forex buying.

Secondly inflows of home remittances grew bulkier providing prudent forex firms a chance to earn decent margins on handling remittances. Industry sources cite the names of NBP Exchange Company and H&H Exchange Company in this regard. Their net profits shot up to Rs50.5m and Rs19m in 2015 from Rs27.5m and Rs10.5m respectively in 2014. Both companies are known for extensive handling of remittances and selling the same in the interbank market on the request of the central bank to help ease temporary forex shortages there.

Thirdly, exchange rates remained somewhat stable in 2015 (the rupee lost just 4.24pc against the dollar) and the SBP kept a strong vigil on speculative activities.

In May 2015, the SBP required exchange companies to keep the spread between buying and selling rates of five major currencies (the dollar, pound sterling, euro, UAE dirham and Saudi riyal) at 1pc of their own buying rates. Earlier, in a bid to discourage speculative activities, the SBP had restricted the spread to 25 paisas. “For us to operate in this environment was like walking on a tight rope. But we somehow managed and quite a number of good companies also recorded an increase in profits,” says a senior executive of a local exchange company.

In CY15, home remittances rose to $19.27bn, up from $17.24bn in CY14. During the first half of this year, remittances have already reached $10.23bn raising hopes that full year inflow would surpass that of the last year and enable forex companies to earn more profits.

However, contrary to the claims of the exchange companies that they still handle up to 40pc of remittances, the SBP sources say their share has shrunk below 20pc. “So, a nominal growth in remittances is not going to result in higher profits of exchange companies,” one of these sources say. But executives of exchange companies insist that the timing of the handling of remittances by them is more important.

The reason is that well-timed routing of remittances through them (i.e. when banks are short of foreign exchange) not only boosts their revenues in the form of buying-selling spreads but also in the form of the margins that they earn by transacting forex deals with banks, industry sources say.

Executives of exchange companies lament, however, that despite their repeated appeals to the government and the SBP not all of them are free to make agreements with global money transfer companies for handling remittances.

According to them, banks not only get their TT charges reimbursed by the SBP on eligible transactions of home remittances (if these value more than 200 dollars) but they have also made agreements with 400 global money transfer companies for routing in home remittances.

Against this, only two exchange companies out of 26 are handling remittances under agreement with their foreign correspondents, and both are subsidiaries of banks.

Published in Dawn, Business & Finance weekly, July 25th, 2016

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