Are Sri Lankan banks ignoring fair FX practices?
Foreign exchange (FX) transactions are an essential part of modern financial systems, facilitating trade, investment, and remittances. However, in Sri Lanka, local banks appear to be disregarding global best practices by imposing excessive charges and wide exchange rate spreads on customers, raising concerns about fairness and compliance with international guidelines.
The Global Foreign Exchange Committee (Global FXC), a global body that oversees best practices in FX markets, explicitly states in its FX Global Code that: “The Mark Up applied to Client transactions by Market Participants acting as Principal should be fair and reasonable.”
Despite the Central Bank (CB) and local banks agreeing to abide by this international standard, their FX-related fees and rate spreads tell a different story.
Foreign currency fund transfers between local banks are facilitated to be processed electronically within LankaPay, making excessive charges unjustifiable. An RTI request to LankaPay, the entity managing the local interbank transfer system, revealed that LankaPay itself charges only Rs. 350 per transaction. However, the fees charged by Lankan banks are significantly higher:
NDB: US$10; ComBank (Commercial Bank): Rs. 5,000; HNB: $20; BoC (Bank of Ceylon): $25; Sampath: $30; DFCC: $45 based on charges I have paid.
This data highlights an alarming lack of uniformity and transparency in transaction fees.
Another major concern is the large spread between the buying and selling rates of the US dollar at different banks. Ideally, FX spreads should reflect genuine market conditions and transaction costs, but some Lankan banks maintain significantly high margins:
DFCC: 4.13 per cent; HSBC: 3.91 per cent; ComBank: 3.27 per cent; BoC: 2.74 per cent; Sampath: 2.74 per cent; NDB: 2.74 per cent; HNB: 2.40 per cent based on published selling and buying prices online.
These figures show that some banks maintain FX spreads nearly twice as high as others, leading to significant costs for customers exchanging foreign currency. The question remains: are these spreads fair and reasonable, as required by the FX Global Code?
The significant discrepancies in FX fees and spreads raise concerns about transparency, competition, and regulatory oversight by the CB in Sri Lanka’s banking sector. Customers have little choice but to accept these excessive charges, as banks provide minimal justification for their pricing structures.
While banks justify their rates based on operational costs and risk factors, the wide variations suggest a lack of competitive pricing and regulatory intervention. If LankaPay processes the transfer for Rs. 350, why are the banks charging from Rs.3000 to Rs.13,500 with overhead for the same online transfer?
Sri Lankan banks’ FX practices do not align with the principles of fairness and transparency outlined by the Global FXC. The excessive transaction fees and wide exchange rate spreads suggest that local banks are exploiting customers rather than providing fair financial services. Stronger regulatory oversight by the CB and public pressure are needed to ensure that banks operate within ethical guidelines and provide competitive services that benefit all Lankans.
It is time for both the public and regulators to demand accountability and transparency in the way banks handle foreign exchange transactions. The banking sector must put customer fairness ahead of excessive profit-seeking practices, ensuring a more equitable financial system for all.
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