KARACHI, Sept 10: September 11 2001 marked the beginning of a new era in banking history of Pakistan. Not only did remittances business progressed by leaps and bounds but stricter checks were placed on transfer of money to and from Pakistan.
The difference between the inter-bank and kerb market exchange rates disappeared paving the way for the setting up of foreign exchange companies in place of loosely-regulated money changers.
The SBP is expected to issue within this week the no-objection certificates to a number of applicants including state-run National Bank for setting up exchange companies.
“With the increased risk in keeping foreign exchange holdings abroad and very strong pressure on hundi/havala remittances were diverted towards banking channels (in the immediate aftermath of 9/11),” says National Bank president Syed Ali Raza.
“Furthermore low premium between kerb and inter-bank exchange rates induced the overseas Pakistanis to use the official means for remitting foreign exchange.” That reflects clearly in larger inflows of home remittances beginning October 2001.
But the question is if this trend is sustainable?
“The gains are sustainable — for money remitted in future will largely flow through banking channels as strict monitoring is being enforced,” says Raza.
“Consistency and sustainability is critical here,” says the chairman of Pakistan Banks Association Zubyr Soomro.
“This means ensuring that...banking supervision remains tight..and banking autonomy is not eroded.”
Head of another large local bank points that larger inflows of home remittances in the post 9/11 situation also “made positive contribution towards the profitability of the banks.”
But another major corollary of 9/11 affecting the banks was the introduction and implementation of stringent regulations regarding money laundering and KYC (Know Your Customer). The US banking regulatory authorities introduced stricter checks on the flow of money through banking system particularly to and from Pakistan in the wake of 9/11.
This more regulated environment also had a negative impact on financial performance of banks “as they became over-cautious and their activities were stifled,” says the top banker who declines to go on record.
But commenting about the negative impacts of 9/11 on banking system Zubyr Soomro minces no words: “The large domestic networks of some of our banks and a simultaneous lack of investment in technology makes it more difficult to screen and surface transactions that need to be investigated. These weaknesses have been highlighted post Sept 11.”
He also points out that global economic slowdown and our own deregulation warrant greater understanding and management of market risks i.e. those relating to interest rates and foreign exchange rate movements.
“This is true not only for banks but also for industry and service businesses and there has to be an enhancement of the systemic capability to respond to these changes not only in terms of management but also accounting, auditing and reporting of the impact.”—M.Az