KARACHI, Sept 18: The State Bank has reduced the markup rate from 11 to 10 per cent for the borrowers availing of part-A of Locally Manufactured Machinery (LMM) scheme which relates to the local sales.

The State Bank’s markup rate for providing refinance to banks and development financial institutions against LMM has also been reduced from 9 to 8 per cent.

In a circular issued to all banks and DFIs, the SBP said that the maximum profit to be earned by a financial institution on financial assistance extended by it under part-A of the scheme shall not exceed 10 per cent.

And where banks would avail refinance from the SBP it will be remunerated at 8 per cent.

Earlier in mid-March, the SBP had made a drastic cut of three percentage points in the markup on LMM under part A of the LMM scheme reducing it from 14 to 11 per cent. The central bank had also lowered by three percentage points its own refinance rate bringing it down from 12 to 9 per cent.

It was in March this year that the SBP decided to revise the rates of markup under part-A of LMM scheme (local sales) on six- monthly basis and linked it to the average yields on three-yar and five-year Pakistan Investment Bonds. This is the first revision of the markup rates on part-A of LMM scheme under the said formula.

The rates of markup on export finance scheme was linked to the weighted average yield of six-monthly treasury bills last year and since December 2001 the central bank has been revising these rates on monthly basis. All this is part of the SBP effort to make lending rates marked-based on the insistence of the IMF.