ISLAMABAD: The Pakistan Association of Large Steel Producers (PALSP) has urged the State Bank of Pakistan (SBP) to compensate the local industry for the huge sums of windfall profits made by some of the banks by overcharging importers in the opening of their Letters of Credit through manipulation.

In a letter addressed to the SBP governor, the PALSP has raised its concerns over the issue that has given a significant hit to the steel industry, which is currently struggling to survive during these difficult times of economic downturn.

The SBP recently observed that the banks were involved in overcharging importers in the opening of their Letters of Credit (LCs). It was witnessed that banks had opened LCs at rates higher than the spot rates. The banks have autonomy over the issuance of their LCs, but since the SBP regulates them they get to determine the rate of exchange at which these LCs work. In response to the said malpractices, the SBP took regulatory action against alleged banks for manipulating the market and making windfall profits at the cost of survival of related mostly struggling industries.

According to reports, the FX earnings of these banks during FY21 were Rs37,888 billion versus Rs27,671billion made in just three months ending June 30, 2022, as windfall profits, by some of the banks of the country. The PALSP underlined the issue that the said exchange rate manipulation by the banks impacted the industry adversely and caused huge losses amounting to millions of rupees in a span of just one quarter. As a matter of fact, the steel industry is already facing a severe liquidity crunch and this additional burden caused companies to shut down production as they were unable to remain even on breakeven, which was a big blow to the economy.

The PALSP has requested the SBP to constitute a committee to evaluate the financial impact, which the industry has been facing due to malpractices and alleged manipulation by the banks involved. Besides, we request the SBP to come forward by lending a helping hand to the troubled industry on the ground that huge losses have become so big that the survival of the industry has become difficult.

Consequently, the SBP is requested to appropriately compensate the business community in general and the steel industry in particular which has suffered huge losses due to said malpractices, out of fines that the SBP would be collecting from the aforementioned banks.

The PALSP urged the SBP governor that considering the challenges of the industry, the central bank must consider reimbursement of the extra charges made by banks that can easily be corroborated with the evidences available with the companies.

Copyright Business Recorder, 2022