Pakistan’s major commercial banks perform poorly on indicators of reducing corruption, ensuring accountability and transparency, says the first report on the policies of the country’s five financial institutions.
The policy rankings of five leading commercial banks in Pakistan, ‘Benchmarking the Sustainability Policies of Banks in Pakistan’, show that all five banks have low policy commitments on climate change, human rights, gender equality and labor rights, while none disclose nature and tax policies when lending money to companies, according to a report published by Fair Finance Pakistan.
Fair Finance Pakistan is a member of Fair Finance International and seeks to strengthen the commitment of financial institutions to social, environmental and human rights standards.
Fair Finance Pakistan assessed the sustainability policies of Habib Bank Limited (HBL), Allied Bank Limited (ABL), National Bank of Pakistan (NBP), Meezan Bank and MCB Bank across 10 subject areas in the Fair Finance Guide International Methodology (FFGI) .
The highest average scores are seen for the issues of consumer financial protection, where these banks received an average score of 4.62 out of 10.
On the corruption index, the banks scored only 3.18 out of 10, on gender equality just 1.48 out of 10 and on transparency and accountability 1.08 out of 10.
For all other issues, the average score for the five banks is below 1 in 10, revealing a lack of public policies on most of the sustainability issues assessed, the report showed.
The ranking is based on the FFGI Methodology used in 21 countries to assess financial institutions’ approach to sustainability, including corruption, human rights and climate change. It was conducted with the support of Lahore University of Management Sciences (LUMS).
Banks have been rated based on publicly available information, and their ratings might have been better if they were also rated based on internal policies, said Siraj Qadir, ABL spokesman.
Banks have long been criticized for making risk-free money by investing in government debt and, in the process, have jeopardized economic growth and transparency in many areas. They are now facing calls to restructure their debt after the country’s finance minister called the public debt “unsustainable”.
The recent statement by the caretaker finance minister that “Pakistan’s debt is not sustainable” is unwarranted, said Ashfaq Tola, former minister of state and former chairman of the Reforms and Revenue Mobilization Commission (RRMC) at the launch of the report. Tola said Pakistan’s economy needs an additional $9 billion every year from millions of overseas Pakistanis and exporters to eliminate the current account deficit besides introducing tax reforms as outlined in the RRMC interim report, which will also give Rs 2.5 trillion in direct taxes to reduce the fiscal deficit.
With these two achievements, “we can gradually reduce our rising interest rates by at least 6% to save at least Rs 2 trillion in debt servicing,” he added.
“These steps will revitalize our economy and we can quickly achieve 7% GDP growth and say goodbye to the IMF.”
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The report showed serious policy gaps in the operation of banks, resulting in low standards.
On a scale of 0 to 10, the five banks scored an average of just 0.5 for addressing climate change. Some of the banks have not publicly disclosed any climate policy aligned with the Paris Agreement in their lending and investment activities.
Similarly, all five banks scored an average of 0.72 out of 10 on human rights policy. None of the banks disclosed human rights policies related to their investments or financing, which raises concerns and does not align with the UN Guiding Principles on Business and Human Rights, according to the findings.
Pakistan’s top five rated commercial banks scored less than 1 out of 10 for labor rights policies and do not have policy commitments to international labor rights standards or comply with national labor welfare laws.
None of the banks assessed have set out public labor rights expectations for their clients and the companies in which they are invested.
With an average score of 1.48 out of 10, no commercial bank reported measures for equal participation and access to senior positions, with the highest reported representation of women on boards at 12.5%, significantly lower than the global average of 27; 1% and short of the 50% target.
None of the banks disclose how they apply a gender lens to their lending and investment activities.
Zahid Latif, former chairman of the Islamabad Stock Exchange, said that women are ghost board members in SECP-regulated companies and there are no regulatory checks on the suitability of women on the board.
Asim Jaffry, Country Program Head, Fair Finance Pakistan, said: “Finance needs to be redefined to address societal challenges and must redouble efforts for clean air, clean water and saving the sustainable planet for our future generations ».
All banks assessed reported an average score of 0.36 out of 10 on the issue of taxation, transparency and accountability. None of these banks discloses a responsible tax policy.
They showed low policy commitments to tax policies, mainly due to the lack of public disclosure about tax transparency.
With an average score of less than 2 out of 10, none of the banks assessed disclosed transparency and accountability practices in the companies they lend to. Documentation of the risk control and complaints mechanism was lacking in all five commercial banks assessed.
The five banks scored highest for financial consumer protection, 4.6 out of 10, followed by anti-corruption policies at 3 out of 10.
Published in The Express Tribune, December 6u2023.
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