KARACHI, March 7: The State Bank Governor, Dr Ishrat Husain, says he will elicit bankers opinion on whether bid bonds and performance bonds submitted by the contractors participating in construction projects be accepted as collateral for bank loans.

Talking to Dawn after inaugurating a seminar on single European currency here on Thursday he said he would discuss this issue at the next meeting of Pakistan Banks Association.

Earlier State Minister and Export Promotion Bureau Chairman Tariq Ikram had pointed out while addressing the seminar that non-acceptance of bid bonds and performance bonds as collateral was causing hardships to contractors particularly those belonging to the construction industry.

“Contractors have to submit a bid bond equal to 2 per cent of the total cost of project...then they have to place 10 per cent as advance after getting the job,” he said adding that in most cases contractors also submit a performance bond equal to 10 per cent of the cost of project. “This creates a lot of liquidity problem for the contractors and people of construction industry who want that these bonds be accepted as collateral for seeking bank loans.”

Tariq Ikram said there was no harm in doing so as these bonds are risk free and requested the SBP governor to take up this issue with the banks.

“The State Bank cannot obviously dictate banks. I will discuss this with the bankers,” he told Dawn. He said banks may accept only such bonds as collateral that are offered by those taking part in international bidding for the projects that are backed by international financial institutions. The governor said banks may not find it feasible to accept all bid bonds and performance bonds at collateral because of the credit risk involved in them.

Businessmen participating in the reconstruction of Afghanistan say that if the banks start accepting their bid bonds and performance bonds as collateral it would encourage them to bid more aggressively in the upcoming projects.