KARACHI: Banks have begun reversing their arbitrarily imposed five percent monthly charges on all accounts with deposits over Rs1 billion as State Bank of Pakistan (SBP) has provided relief on the minimum deposit rate.
Industry sources told Business Recorder on Tuesday that the SBP had expressed strong concern over the banks imposition of a monthly fee on accounts having deposits above Rs1 billion and directed the withdrawal of charges immediately. The move comes as part of the SBP’s efforts to ensure fair banking practices and protect the interests of depositors, they said.
In order to facilitate banks, the SBP has also announced removal of Minimum Profit Rate (MPR) requirement for the deposits of financial institutions, public sector enterprises and public limited companies, which have larger depositors.
Banks allowed to charge off fully provisioned NPLs
The federal government has decided to impose incremental tax up to 15 percent on banks if the Advance to Deposit (ADR) remains below 50 percent as on Dec 31, 2024. Initially, this tax was announced in the FY24 budget, however, now deferred for one year. The tax is now set to take effect during this fiscal year as banks continue to report strong profits driven by higher policy rates and increased government lending.
In a move to avoid a potential government-imposed tax, commercial banks decided to discourage the large deposits and announced imposition of 5-6 percent monthly fee on checking accounts having deposits/balance ranging Rs1 billion to Rs5 billion on the last day of the month.
A number of leading banks including HBL, UBL, MCB Bank, Meezan, BoP, Faysal Bank and Standard Chartered issued notices to clients and informed that under the new fee structure, accountholders whose balances exceed the designated threshold on the last day of the month will incur a 5-6 percent fee.
Some banks applied a maximum limit on daily credit balance of Rs 1 billion on all types of checking accounts and said that they have the right to refuse or return the amount over and above the side limit of Rs 1 billion to the accountholder by issuing a pay order or through any other means.
This move comes as banks aim to reduce their deposits in order to meet the 50 percent ADR threshold and avoid the incremental tax. However, the decision faced widespread criticism, with analysts warning that it could discourage depositors and negatively impact the overall deposit base.
Accordingly, the SBP has (unofficially) directed banks to reverse this fee immediately. At the same time in order to facilitate banks, the SBP officially announced that Minimum Profit Rate requirement will not be applicable on the deposits of financial institutions, public sector enterprises and public limited companies.
Now, conventional banks are no more required to pay or offer a healthy profit rate to these sectors or large depositors. However, Islamic Banking Industry is still waiting for relief.
Following the SBPs (unofficial) directives, Meezan Bank, the country’s leading Islamic bank, has announced withdrawal of 5 percent monthly fee on deposits above Rs 1 billion with immediate effect.
Meezan Bank on November 26, 2024 through its website announced amending the public notice issued on 20th November 2024 issued for imposition of 5 percent fee on Rs 1 billion balance.
Meezan Bank always values its customers with commitment to providing quality banking services. The following additions/amendments to its existing Schedule of Charges (SOC) for the period July-December 2024 (as communicated through publication on 20th November, 2024) shall stand deleted with immediate effect: Meezan has right to recover monthly fee of 5 percent on deposit accounts where the balance on the last day of the month of an account is PKR 1 billion and above (or equivalent in case of foreign currency), the bank notice said.
Industry sources said other banks would also announce withdrawal of monthly fee on large deposits as the SBP has already granted some relief in terms of Minimum Deposits/Profit Rate.
As per the weekly data, Banking Sectors Gross ADR ratio increased to 44 percent as of Oct 25, 2024 from 39 percent recorded on Sept 27, 2024. Gross advances increased by 11 percent to Rs13.4 trillion while deposits declined by 1 percent to Rs30.5 trillion as of Oct 25, 2024. Now, the banks are required to disburse advances aggressively to achieve the 50 percent ADR condition and avoid additional tax.
Copyright Business Recorder, 2024