KARACHI, June 28: A rapid growth in foreign currency deposits has posed a problem for leading foreign banks that are unable to keep such deposits at the prescribed limit of 20 per cent of their overall deposits.

Bankers say the list of the banks that have breached the limit set by the State Bank includes more than half a dozen foreign banks and at least one local bank that was earlier operating as a foreign bank. Among them is (i) ABN Amro (ii) Citibank (iii) Credit Agricole Indosuez (iv) Emirates Banks (v) Mashreq Bank (vi) Deutsche Bank and some relatively less-known foreign banks.

Bankers say fresh foreign currency deposits are now nearing $2 billion mark up from $1.5 billion in mid-September 2001 adding that the foreign currency deposits started growing phenomenally after 9/11.

Senior bankers say he State Bank is not willing to increase the limit fearing that it would lead to re-dollarization of the bank deposits.

The State Bank had allowed opening of fresh foreign currency accounts on June 20, 1998 after freezing $11 billion worth of the then existing foreign currency accounts on May 28 the same year —when Pakistan went nuclear.

Up till March 31, 2001 there was no restriction on the banks in regard to the total amount of their foreign currency deposits. But from then onwards the SBP required all the banks to keep their new foreign currency deposits at not more than 20 per cent of the total deposits. The move was aimed at checking the rapid growth of these deposits to save the nation from the perils of dollarization that had hit the economy hard in earlier years.

Senior bankers say fresh foreign currency deposits of the entire banking system were well below 10 per cent at that time. But in case of some foreign banks these deposits were much higher than their rupee deposits: Quite a few banks had very little rupee deposits at all.

The central bank viewed this situation with much concern and on May 14, 2001 it set January 1, 2002 as the deadline for such banks to scale down their fresh foreign currency deposits to the prescribed level. But the deadline passed unnoticed leaving the central bank with no choice but to extend it up to July 1, 2002.

The new deadline was honoured by some banks but others still continued to keep fresh foreign currency deposits at more than 20 per cent of their total deposits. Some of these banks requested the central bank to review their limits but to no avail. The SBP officials were of the view that rising volume of fresh foreign currency deposits can play havoc with Pakistan’s weak economy.

Senior bankers say what makes it all the more imperative for the central bank to keep a strict check on the growth of these deposits is that—unlike in the past—these deposits are entirely in the hands of the banks themselves.

In the old days foreign currency deposits mobilised by the banks remained in the SBP tills and the banks used to get the rupee counterpart of these deposits.

That is why the central bank is determined not to increase the limit from the present 20 per cent for the fresh foreign currency deposits of a bank in relation to its overall deposits. But the SBP has given the erring banks another six months to meet this limit. The new deadline is Dec 31, 2002.