Pakistan is on the cusp of a historic shift in its financial landscape as the newly-passed 26th Constitutional Amendment Bill, 2024, sets January 1, 2028, as the deadline to eliminate Riba (interest-based banking) from the country’s economic system.
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President rejects Soneri Bank’s appeal in fraud case
ISLAMABAD: President Dr. Arif Alvi has rejected an appeal filed by Soneri Bank Limited against an order made by Banking Mohtasib.
The President ordered the bank to pay the amount to complainant in fraud case, a statement said on Saturday.
According to the details, President Dr. Arif Alvi has rejected the representation, filed by the Soneri Bank Ltd (SBL) against the order of the Banking Mohtasib, and has made the bank responsible to make good the loss of the money to the complainant without further delay.
While upholding the orders of the Banking Mohtasib to pay an amount of Rs 800,000 amount to the complainant, the President stated in his decision that the bank could not escape the liability in a case of this kind, when the commission of fraud with the account holder by its management was established and admitted.
He said that the ample opportunity had been provided to the Bank before the learned Banking Mohtasib to defend and controvert the claim of the complainant and even before the forum, however, the bank had failed to discharge the burden and statutory liability cast upon it under the law.
Muhammad Danish Naseem (the complainant) maintains an account with the Soneri Bank Ltd Sargodha Road Branch, Sheikhupura.
Danish opened his account on 22-10-2018 in the bank branch and requested the Manager to deposit PKR. 2,000,000/- (two million rupees) cash in the said account. Whereas, the Manager gave him deposit slips of Rs. 500,000/-, Rs. 900,000/- and Rs. 600,000/- respectively.
Despite insistence of the account holder for issuing one deposit slip of amount i.e. Rs. 2 million, the bank manger issued three deposit slips saying that it was to overcome the restrictions of the SBP.
Later, the account holder wanted to draw money from his account but there was no sufficient balance in his account. He lodged a complaint with the bank’s authorities but his grievance was not addressed.
Although, the complainant possessed valid deposit slips admittedly issued by the Ex-Manager bearing his genuine signature and Branch Stamp affixed thereon which validated customer claim to the extent that the Bank had not accounted for amounts of PKR. 2,000,000/- in his account.
Furthermore, the Bank had admitted during the proceedings before the Banking Mohtasib that the receipts in possession of the customers bore signatures of the Bank’s ex-Manager.
Despite all these proofs, the complainant was compelled to run from pillar to post and no relief was provided to him. Feeling aggrieved, Danish Naseem approached the Banking Mohtasib for his grievance.
The Banking Mohtasib, under Section 82 D of the BCO read with Section 9 of the Federal Ombudsmen Institutional Reforms Act, 2013 (No. XIV of 2013), advised the Bank to forthwith make good the loss by crediting the account of the complainant with a sum of Rs800,000/- in pursuance of the findings.
While rejecting representation of the Bank, the President has noted that it is a case of wrong doing and maladministration by the Bank officials and it is, therefore, responsible to make good the loss of the complainant.
He further stated that the ambit and extent of jurisdiction of Banking Mohtasib was spelt out under Section 82A (3)(a)(e), Section 82B(4)(5) and Section 82F of the Banking Companies Ordinance, 1962.
The cumulative reading and perusal of these provisions of law undoubtedly leads to the conclusion that the Banking Mohtasib is to inquire into the complainants about banking malpractices, maladministration, wrong doings, the fraudulent transactions, the corrupt and malafide practices by the Bank officials and pass appropriate orders on conclusion of inquiry.
These powers of the Banking Mohtasib when considered in context with Section 18 and 24 of the Federal Ombudsmen Institutional Reforms Act, 2013 further show that in matters falling within the jurisdiction of the Banking Mohtasib, stated the decision.
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Assets of baking system increase by 7.8pc amid COVID challenges: SBP
KARACHI: The assets of banking system increased by 7.8 percent during first half (January – June) 2020 despite challenging economic conditions prevailing during the period due to COVID-19 outbreak, State Bank of Pakistan (SBP) said on Wednesday.
The SBP issued Mid-Year Performance Review (MPR) of the Banking Sector for the year 2020.
The review comprehensively covers the performance and soundness of the banking sector for the period January to June 2020 (H1CY20).
The expansion in assets was backed by banks’ investments, which increased by 22.8 percent (or Rs2.0 trillion). The surge in deposits provided the necessary funding support to finance the robust rise in investments.
Advances, on the contrary, observed mild downtick owing to the economic slackness caused by the disruption inthe business activities after the outbreak. Sans SBP supportive measures, though, the contraction in advances could have been much higher.
The review also highlighted that the policy measures rolled out by SBP facilitated the banking sector in conserving the capital, enhancing the lending capacity and increasing the loss absorption ability.
As a result, despite some increase in credit risk, banking sector demonstrated improved profitability and enhanced resilience.
The Non-performing loans (NPLs) ratio increased from 8.6 percent as of end December 2019 to 9.7 percent as of end June 2020.
However, net NPLs to loans ratio, which is a better measure of credit risk, increased only marginally from 1.7 percent to 1.9 percent.
The earnings marked visible improvement as profitability jumped by 52 percent on YoY basis. This improvement resulted from higher interest income, deceleration in interest expenses and rise in non-interest income.
With better profitability, the soundness of the banking sector further strengthened as Capital Adequacy Ratio (CAR) increased to 18.7 percent in June-20 from 17.0 percent in December 2019.
The review also includes the results of the 6th wave of SBP’s Systemic Risk Survey (SRS) conducted in July-August, 2020, which represents the views of the market participants.
The survey results indicate that—at present and for the next six months—the respondents consider global risks and domestic macroeconomic risks to be important.
Notably, the policy measures taken by SBP to mitigate the implications of COVID-19 have been very well received by the stakeholders.
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Finance Bill 2019: Banks to pay 37.5pc tax on profit from investment in govt securities
ISLAMABAD: Banks shall pay 37.5 percent income tax on profit from investment in government securities, according to proposals made through Finance Bill, 2019.
The Federal Board of Revenue (FBR) in explanation to the Finance Bill, 2019 said that banks are earning substantial profits on account of incremental exposure to government securities.
Therefore profit from such government securities as is in excess of twenty percent of total profit before tax is being taxed separately at the rate of 37.5 percent.
The FBR further said that banks generally do not offer for taxation the provisions which were previously allowed but later on reversed. Therefore reversal of provisions already allowed is being made taxable by inserting an explanation in the Seventh Schedule.
Banks are also allowed to claim deduction in respect of provisions classified as “doubtful” and “loss”. Now only deductions only in respect of provisions classified as “loss” are to be allowed.
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Banking sector profits decline by 7 percent in 2018
KARACHI: The profits of banking sector have declined by 7 percent to Rs149 billion in 2018 as compared with around Rs160 billion in the preceding year, according to analysis of Topline Research issued on Tuesday.
The analysts said that for 2018, despite 10 percent YoY increase in Net Interest Income (NII), profits were down 7 percent YoY (ex-HBL penalty) due to 1.8x higher provision charge, 64 percent lower capital gains and 14 percent higher administrative expenses.
They expect net interest income to expand further due to the lagged impact of policy rate hikes. The analysts anticipate State Bank of Pakistan (SBP) to increase interest rates by further 75 basis points to 11 percent by December 2019.
However, during 4Q2018, Pakistan Banking Sector profitability rose to Rs38.3 billion, up by 6 percent YoY. The increase in profitability is primarily owed to 16 percent YoY increase in net interest income as well as 7 percent increase in non-interest income.
The analysts have taken results of all listed banks that have announced 4Q2018 financial results.
Moreover, for 4Q2018 reversals in pension charge and Workers Welfare Fund (WWF) amounting to Rs4.2 billion and Rs6.7 billion, respectively, also supported the bottom-line we believe.
Net Interest Income (NII) of the banks improved by 16 percent YoY to Rs135 billion in 4Q2018 as a result of a cumulative 425 basis points hike in policy rate during 2018.
Similarly, on a sequential basis, NII is up 10 percent as the lagged impact of asset re-pricing kicked in.
To note, SBP has raised policy rate by 425 basis points in 2018, with 150 basis points coming in 4Q2018.
Comparing the big-5 (MCB, HBL, UBL, ABL, NBP; profits down 24 percent YoY) versus the rest under our coverage (MEBL, BAHL, BAFL, AKBL), the analysts see that mid tier banks have outperformed their larger peers due to better sensitivity to interest rates as well as absence of significant provision charge during the outgoing quarter.
Profits of Mid-tier banks are up 32 percent YoY (they excluded BOP from mid tier numbers due to substantial one off provisioning in 4Q2017).
Despite 16 percent YoY growth in net interest income, profitability growth was contained to 6 percent YoY primarily due to high provision charge specifically by the large banks including HBL, UBL and NBP.
Cumulatively, total provision charge by the said three banks for 4Q2018 was Rs15.7 billion (around 73 percent of total provision by the sector), with NBP, UBL and HBL charging Rs6.8 billion, Rs5.6 billion and R3.3 billion, respectively.
Overall, the sector booked provision charge of Rs21.5 billion compared to Rs13.3 billion in the same period last year.
To note, BOP booked significant provision charge of Rs12.7 billion during 4Q2017 compared to reversal of Rs137 million in 4Q2018.
NBP booked significant provision charges on its loan portfolio, specifically with regards to its exposure to Omni group, the analysts believe. Similarly, majority of UBLs charge was related to NPLs (Rs5.0 billion) mostly from its international loan book and most of HBLs booked charge was also on account of NPLs (Rs2.3 billion).
Despite lower capital gains and dividend income, Non-interest income of the banks rose by 7 percent YoY mainly due to 17 percent higher fee income and 86 percent higher income from dealing in foreign currencies.
They attribute higher non-interest income to rapidly growing loan book, higher trade volumes as well as rupee depreciation.
Admin expenses grew by 20 percent YoY while non-interest expense rose by 14 percent YoY. The growth in non-interest income was contained due to reversal in provision for Workers Welfare Fund (WWF) by select banks (Rs6.7 billion in total).
Cost to income of the sector increased by 3.1ppts YoY to 64.2 percent in 4Q2018.
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KSE-100 gains 169 points on activities in E&P sector
The benchmark KSE-100 index of the Pakistan Stock Exchange (PSX) closed with a gain of 169 points on Thursday, largely driven by increased activity in the exploration and production (E&P) sector.
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