Banks Charge Fees on Large Deposits to Deal with Excess Cash, Avoid Tax
KARACHI: Overburdened by excess cash in their coffers, commercial banks in Pakistan have begun to charge fees on large deposits exceeding Rs1 billion to Rs5 billion to avoid paying additional taxes on their profits. The new charges came into effect after the government unveiled its plan to impose tax on banks facing a low advance-to-deposit ratio (ADR) by the end of the year.
Major commercial banks, including Bank Alfalah, MCB, Meezan, HBL, and Standard Chartered, have sent notifications to customers with large deposits, informing them of the new charges. As per the new policy, customers whose account balances exceed the designated threshold on the last day of the month will be charged a 5% monthly fee, effective from November 21, 2024. This applies to both rupee and foreign currency accounts.
For another, to control huge deposits, certain banks have established daily limits on checking accounts, like Meezan. Customers are cautioned that any amount above the limit may be refused or returned by the bank.
The move comes in response to a government budget decision that will impose an incremental tax of up to 15% on banks if their ADR remains below 50% by December 31, 2024. Now, banks are taking measures to avoid this tax by reducing their cash deposits, hoping to increase their ADR by year-end.
Senior bankers are confident that the ADR will improve, and the fee strategy would help discourage large deposits. However, certain experts have opined that if banks fail to achieve the desired ADR target, further fees might be in the offing.
Though this policy will have no significant impact on small depositors, it is likely that the savings accounts’ interest rates will decline if the policy interest rate declines. The current ADR for banks stands at around 44%, and there are only 40 days left to achieve the target of 50%.
As the experts in this industry state, because of this strategy, banks’ profits will not be harmed. This is because it allows them to avoid paying additional taxes. Actually, the fact that banks cut the level of deposits already resulted in increased lending, which should help boost their financial situation.
