ISLAMABAD, Sept 2: The office of fair trade (OFT) of the Competition Commission of Pakistan (CCP) has taken cognizance of possibly misleading advertisements by banks with respect to interest rates on long-term deposits.

Over the last few weeks a number of banks have advertised in the media that they are offering interest rates on deposits as high as 10 to 16 per cent, luring the customers.

The CCP on Tuesday announced, “It feels that there may be a serious flaw in the methodology by which profits are calculated by banks on deposits. The commission is of the view that the existing methodology does not reflect the true return earned by investors, which could be considerably less than the advertised figures.”

Section 10 of the Competition Ordinance 2007 prohibits deceptive marketing practices such as the distribution of false or misleading information to consumers.

Now the OFT has asked for clarification from three banks at present and possibly from some more in the near future.

The CCP has also noted with concern the decision of the Karachi Stock Exchange (KSE) to place price floor, across the board, based on the closing prices of securities on August 27 this year.

“The commission feels that placing this price floor prevents the free interplay of market dynamics and forecloses free choice, entry and exit by traders,” the commission’s official announcement said.

The KSE’s decision, the commission says, also discriminates against investors, who are ‘short’ and favours those who are ‘long’ apart from the moral hazard implications.

The commission has asked the KSE to provide certain clarifications with regard to the price floor to determine whether their action has violated any provision of the Competition Ordinance, 2007.

In March this year, the CCP chairman Khalid Mirza had observed that as the banking sector was minting huge profits in the wake of existing spread (gap between lending and deposits rates) as well as imposing other hidden charges on its clients, the commission decided to conduct full-fledged study on the sector to come up with facts.

It said the CCP was also on the way to establish competition consultative group (CCG) comprising all regulators, including State Bank of Pakistan (SBP), National Electric Power Regulatory Authority (Nepra), Oil and Gas Regulatory Authority (Ogra), Civil Aviation Authority (CAA), Pakistan Telecommunication Authority (PTA), Pakistan Electronic Media Regulatory Authority (Pemra) and Security Exchange Commission of Pakistan (SECP) to get viewpoints of all the concerned stakeholders.

In the CCG other stakeholders such as Pakistan Business Council, Overseas Investors Chamber of Commerce and Industry, Management Association of Pakistan, Institute of Chartered Accountants of Pakistan and the American Business Council will also be included in order to improve competitiveness.