KARACHI, Feb 18: Leasing companies plan to offer lease finance in dollars to exporters for purchase of industrial machinery if they can borrow foreign exchange from banks at a reasonable rate.

“Some leasing companies are seriously thinking about it,” said chairman of Leasing Association of Pakistan Humayun Murad. “But to make it happen the State Bank...or banks will have to offer us dollar-denominated loans.”

Speedy inflow of foreign exchange into Pakistan in the wake of September 11 incident makes it possible for banks to offer dollar -denominated loans to leasing companies or other businesses. SBP can also encourage them to do so by creating a dollar-rupee swap window for this purpose.

“The demand is there,” says industrialist Sheikh Amjad Rashid. “If banks can offer us dollar-denominated loans at an affordable price there is no reason why businessmen should not avail of this facility,” he observed. “Such loans would particularly encourage those who need more capital to make investment in Afghanistan where new business opportunities are opening up.” They can lease out machinery and other capital equipment to those who may be taking part in rebuilding of Afghanistan.

Finance Minister Shaukat Aziz promised to senior executives of leasing companies at a luncheon held here in his honour that he would encourage banks to start offering dollar-denominated loans.

Banks operating in Pakistan are free to offer loans in foreign currency but most bankers find it a less-lucrative business as compared to rupee lending on which they earn higher profit. Some banks that offer foreign currency loans charge a markup of not less than 6.5 per cent. Businessmen say this is too high a price.

“When six-month LIBOR is at 2 per cent why should one pay 6.5 per cent markup on dollar-denominated loans,” questioned a local businessman.

Businessmen are eager to borrow dollars as the hard currency has fallen by six per cent since September and is headed towards shedding more weight as foreign exchange reserves have risen from $3.2 billion to about $5 billion.

They know that if the dollar goes further down it would make up for their debt servicing and even if it rises modestly the cost of borrowing would be much lower than in rupee. Most banks are lending one-year and longer rupee funds at 12-14 per cent.

Banks say what makes it difficult for them to start liberal lending in dollars is that the inflow of foreign exchange that the country is witnessing is not coming to stay with them. “The moment we get additional foreign exchange the SBP buys it from us,” said a seasoned banker. “Naturally then banks cannot price dollar-denominated loans at LIBOR plus one or two per cent as the business community demands.”

Besides, banks have to take into consideration the exchange rate fluctuations. “It’s the depositors’ dollars that we are lending...we have to provide for the exchange risk cover,” said president of Habib Bank Zakir Mahmood. His bank started lending dollars about a month ago and he says the bank has so far lent $25 million out of $40 million earmarked for this purpose. “For us this has been a successful experience...the demand is so high that I think we will end up using all $40 million very soon.”

Bankers say one way to encourage banks to offer dollar loans could be that the SBP sets up a dollar-rupee swap window that it can use at times to buy or sell dollars. Central bankers say they plan to open up such a window but initially that would work one way: the SBP will only purchase dollars from banks and pump in rupee funds into the inter-bank market.

“Let us hope we can make it work both ways. That would be an ideal situation,” he said.