CHALLENGES & OPPORTUNITIES OF COMMERCIAL BANKS IN PAKISTAN

Written by: Waheed Zaman

There is no running away from the fact that Govt is making mega efforts to put the economy on track & address the concerns raised by the AML-CFT watchdog. Govt has started working on a war footing basis to meet these challenges & intend to emerge as fully compliant.

SBP is also shouldering this responsibility efficiently & diligently & serving as a guiding light to commercial banks. Govt & SBP are on the same page & introducing divergent policies, which make Commercial banks the key player in the overall situation. This drive on the part of SBP & Govt has increased the role & challenges of commercial banks at par.

Due to said targets & challenges, Commercial banks have taken the central stage to perform at their best, In the wake of said developments, Banks are facing a few challenges, which we will be discussing here briefly:

(1) Implementation of new AML Amended Act- 2020:

In compliance with FATF recommendations, SBP has assigned regulated entities to play their major role & Commercial banks are no exception. They are making all-out efforts to implement AML/CFT/ CPF in true letter & spirit,

On the one hand, commercial banks are under obligation to work between the brackets & take substantial time & energy to take new customers on board, On the other hand, allocating a fair amount of funds to make expenses by introducing automation system, strengthening compliance, Internal Audit, Internal control unit & training of human resources.

SBP Directives for the Treasury Single Account (TSA) Implementation:

The Finance Division, Ministry of Finance, Govt of Pakistan in its letter to all govt departments, has advised them to close their bank accounts with the commercial banks & arrange to transfer funds to the central account with SBP through RTGS. This decision will have critical impacts on the health of commercial banks & will cause a substantial decrease in their current portfolio. Commercial banks will have to extract funds from the already struggling market due to the prevailing pandemic of covid-19. Those state-owned banks which contain 70% to 80% government funds will definitively face the music, this will set a new dimension for commercial banks to stand out & challenge themselves, they will be supposed to revisit their policies, explore new segments & mining innovative ways of filling the gap instantly.

Government of Pakistan’s Markup Subsidy for Affordable Housing Finance:

Govt of Pakistan has established Naya Pakistan Housing and Development Authority (NAPHDA), for the revival of the construction industry & providing housing facilities to the homeless. further, it has allocated Rs, 33 billion for payment of markup subsidy for financing over a period of 10 years, keeping in view the above govt initiative, SBP has introduced benefit & punishment mechanism for banks to promote this concessional drive. SBP has directed banks to extend this concessional financing to the general public & in return to reap the benefits of maintaining a reduced Cash Reserve Requirement (CRR).

Under these arrangements, if any commercial bank succeeds in achieving desired results, it will be provided with the opportunity to maintain a reduced CRR equal to the achieved target.

Simultaneously this cited arrangement may also penalize banks for their inability to achieve required targets, any shortfall will automatically result in requiring banks to maintain extra CRR by an amount equal to the shortage from the given target.

It is pertinent to mention here that commercial banks do not earn any return on the amount of CRR maintained, this is why it would be a high time for commercial banks to view target achieving as a profit & any shortage from the target as a penalty.

This stick carrot approach has brought commercial banks to at crossroads, it is yet to be seen if the banks are well equipped to take this as a challenge & successfully translate it into an opportunity or not !!!