KARACHI: The Pakis­tan Banks’ Association (PBA) on Monday rejected the perception that banks profit from government incentives tied to remittance inflows, stating that they instead bear substantial costs to maintain formal channels for overseas money transfers.

“In reality, banks incur enormous expenses to stay competitive, offering higher rebates and foreign exchange (FX) premiums to Money Transfer Opera­tors (MTOs) and remitters abroad,” the PBA said in a press release.

The government has allocated Rs87 billion in the current budget as incentives for banks facilitating remittances, with reports suggesting that 90pc of these funds will be directed to the banking sector.

However, the PBA clarified that these incentives only partially cover the costs incurred by banks, who absorb the remainder to maintain liquidity for import payments and broader economic stability.

For instance, banks reportedly pay a premium of Rs3-5 per US dollar over the interbank rate to attract remittances that might otherwise be channelled through the informal hawala system, resulting in direct financial losses “in the national interest”.

The association said banks invest significantly in compliance systems, correspondent banking relationships, technological infrastructure, and customer outreach to ensure the secure and efficient processing of remittances.

“Approximately 90pc of rebates prior to FY25, and over 100pc under FY25 schemes, are passed directly to international partners, leaving no direct profit for banks,” the statement added.

The PBA dismissed allegations that banks manipulate remittance data, launder undeclared funds, or facilitate tax evasion as baseless.

Despite incurring losses, banks continue to offer competitive foreign exchange rates to maintain formal inflows. Without such inc­e­ntives, remittances would shift back to undocumented channels, undermining fiscal sustainability and increasing reliance on costly foreign borrowing, it warned.

Published in Dawn, July 1st, 2025