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| September 3, 2002 | Tuesday | Jamadi-us-Saani24,1423 |
SBP issues guidelines: FCY trade loans
KARACHI, Sept 2: The State Bank has issued a set of guidelines about trade loans being offered by the banks out of their fresh foreign currency deposits.
In a circular issued last week to the banks dealing in foreign exchange the SBP clarified that foreign currency deposits could be used for these purposes: (i) financing exports (ii) financing imports (ii) lending to exporters and (iv) lending to importers.
But the issuance of the circular does not mean that banks are currently not using their fresh foreign currency deposits for trade financing. In fact they were allowed by the State Bank to use these deposits for trade financing as early as on March 31 2001 — and since then several major banks have been involved in this business: State-run Habib Bank alone has used $70 million in foreign currency lending.
The circular has been issued in response to the queries that a number of banks have been making ever since the central bank allowed foreign currency lending out of fresh foreign currency deposits.
The circular makes it clear that the trade loan facility for the exporters out of fresh foreign currency deposits is self- liquidating in nature meaning that their export proceeds would be automatically used for repayment of such loans. Following are some other features of export financing out of fresh foreign currency deposits:
* Banks are allowed to extend the pre-shipment finance on the back of a letter of credit or firm contract.
* In case of non-shipment or cancellation or partial shipment against LCs or firm contracts and subsequent adjustment of foreign currency facilities, banks will furnish details of such contract or LC to the SBP to purchase foreign exchange from the inter-bank market.
* Banks are allowed to adjust foreign currency loan against pre-shipment finance from the proceeds of the post-shipment facility against which the pre-shipment facility was allowed earlier — like discounting of foreign bills in foreign currency.
* In case of discounting of foreign bills in rupees the pre- shipment facilities can be adjusted through inter-bank market. But it should be ensured that such proceeds are repatriated within six months from the date of bill of lading.
* On receipt of export proceeds the banks will adjust the loan outstanding against the export bill.
* All bank charges on export and interest on such export loans will be recovered from inter-bank market.
* In all those cases where the exporters fail to repatriate the export proceeds after shipment of goods and are unable to adjust the foreign currency loan outstanding against such exports, banks need to inform the SBP.
* The pre-shipment finance allowed against a letter of credit will only be adjusted through discount of documents against the same LC.
* The facility for imports can be allowed only from the date of actual execution of import payments in foreign currency by creating a foreign currency loan against the importer.
The minimum period of such loans should not exceed six months from the date of disbursement.
* For repayment of the loan the banks are allowed to purchase foreign currency to the extent of loan from inter-bank market at the prevailing exchange rate on the date of repayment in order to adjust foreign currency loan outstanding against such importers.
* Banks are allowed to purchase foreign currency from inter- bank market to cover the interest amount on such loans.
* No forward cover will be provided to importers who avail foreign currency finance against fresh foreign currency deposits. The forward cover facility is allowed only against outstanding import commitments.
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