Local banks have taken a series of strong anti-money laundering steps to ensure that official channels are not misused to finance terror activity, S Ali Reza, chairman and president of the National Bank of Pakistan said on Saturday. "Knowing your client is our top priority," he told Reuters in an interview.
Now banks do not open new accounts without confirming the source of income of their prospective clients and until they give proper references, Reza said.
The September 11, 2001 terror attacks in the United States have changed many rules and conventions for local bankers.
They are under growing pressure from local and foreign regulators to tackle money laundering - facing fines, jails and even closure of institutions if they do not know their customers, or the source of their money.
NBP chief said his bank launched extensive training programmes for its staff members for anti-money laundering operations, introducing a system of check and balances to ensure that both internal and rigorous central bank regulations were followed.
"Today a transfer of 500 dollars to a terrorist organisation can bring down the world's largest bank. Even such a small amount has big ramifications."
Reza said the National Bank froze accounts of banned groups on government instructions and caught a few cases of money laundering.
"Institutions can be fined million of dollars and their licences can be forfeited if found involved in money laundering," he said. "In an extreme scenario, if it is a major or flagrant violation it can close down an institution."
On a query, Reza said he did not expect a dramatic rise in interest rates, which have been rising in recent months as the central bank tries to check inflation.
The State Bank of Pakistan has been gradually increasing yields on its benchmark six-month Treasury bills to counter rising inflation, which is running at an annual pace of 8.7 percent.
"We don't see any dramatic increase in the interest rates," said Chairman of National Bank of Pakistan, which also performs treasury operations.
After a slight increase in rates, there will be period of stabilisation, he added.
The central bank recently said it was unlikely that an inflation target of 5.0 percent for the fiscal year to June 30, 2005 would be met.
In the last treasury auction held on Wednesday, yields on six-month paper rose more than half a percentage point to 4.4290 percent.
Since the start of the new fiscal year in July, yields have gone up 2.35 percentage points, but many bankers say the SBP has not been aggressive enough in its bid to control inflation.
Reza said he did not think the central bank was slow in increasing rates. The economy absorbed unexpected external shocks, including a record surge in world oil prices, he said.
"Only six or seven months ago, the lowest interest rates were witnessed in the country," NBP chief said, adding, "Right now there is a kind of reversal of the curve.
Reza said the rise in inflation appeared temporary.
Oil prices will eventually come down and Pakistan expects a better wheat crop next season after being forced to import the commodity this year, he said and added that economic reforms started by the government had given good dividends.
Reza said that second generation reforms would have to build on steps already undertaken. "There is a need to focus more on areas like infrastructure, which has serious bottlenecks," he opined.
Pakistan needs to make sure that its ports, roads and power generation facilities do not become a constraint for investment, NBP chief said and hoped that commercial banks, which in the past have stayed out of infrastructure projects, would become more involved in financing them.
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