KARACHI: The move to replace the existing foreign exchange companies could be counterproductive and allow banks to exploit the situation as they did in the recent past by manipulating the exchange rate, said currency dealers on Wednesday.
Granting licences to banks for setting up exchange companies has threatened the existence of exchange companies.
The latest development after a crucial meeting of high-ups in Islamabad shocked currency dealers when a leading businessman was told about the increasing pressure to close down exchange companies.
“Authorities said that they are under pressure to close down exchange companies business since they are held responsible for the increased dollar rate,” said Malik Bostan, Chairman of the Exchange Companies Association of Pakistan (ECAP).
“This is a completely wrong approach. In case of closure of exchange companies, a grey market will appear more strongly,” said Mr Bostan.
Over the last few weeks, three big banks have announced the launch of their exchange companies. These are MCB Bank, UBL and Meezan Bank while National Bank and Habib Bank already have their exchange companies.
“The banks were not punished for manipulating the exchange rate even after the State Bank caught them red-handed,” said Zafar Paracha, General Secretary of ECAP.
Several banks were held responsible for increasing dollar rates artificially. The banks bought dollars from exchange companies for credit cards and charged customers at much higher rates. It increased the dollar rates and the State Bank sprang into action, holding several banks responsible for it.
“The State Bank failed to punish those banks since the banks ‘foreign investors’ compelled the authorities to stop the search for banking crime and no punishment,” said Mr Paracha.
Sources in the financial sector said that 80pc Pakistani banking shares are held by foreign investors, particularly those from the Middle East.
They said that bringing currency under one roof will allow banks to exploit the exchange rate, particularly when most of the banks are under the control of foreign investors.
However, analysts and researchers said business through banks would be more transparent.
“The transparency level of banks is much better. The currency business will be transparent, which is good for both buyers and sellers,” said Samiullah Tariq, head of research and development at Pak Kuwait Investment Company.
Five digital banks
SBP Governor Jameel Ahmad awarded in-principle approval (IPAs) to five proposed digital retail banks in a bid to foster innovation, financial inclusion and affordability of digital financial services.
The proposed banks are HugoBank Ltd, KT Bank Pakistan Ltd, Mashreq Bank Pakistan Ltd, Raqami Islamic Digital Bank Ltd and Telenor Microfinance Bank Ltd.
Mr Jameel assured the financial fraternity of SBP’s commitment to make the system more inclusive, more innovative, and more responsive to the citizens’ needs.
Published in Dawn, September 21st, 2023