KARACHI, May 28: Leasing companies have put the plan to offer dollar-denominated lease finance into cold storage as banks are not ready to offer them foreign currency loans for this purpose.

“The exporters are not much interested in it nor do we have any credit line...so it seems premature for us to initiate offering foreign currency lease finance,” says the chairman of Leasing Association of Pakistan, Humayun Murad.

Earlier this year, some major leasing companies were planning to offer lease finance in dollars to help exporters buy industrial machinery, and Finance Minister Shaukat Aziz had appreciated this idea at a meeting held here in February.

“But since the export market itself is struggling against all uncertainty, the idea has not generated much response from the exporters,” said Humayun Murad. “Besides, banks are reluctant to give us foreign currency loans for this purpose,” he said when reached by Dawn over telephone.

Senior bankers confirm that banks are not interested in making loans to leasing companies to enable them to offer dollar-based lease finance. “We cannot make long-term loans out of the foreign currency deposits because we have to cover our positions,” said a senior official of Habib Bank.

He said his bank had restricted its foreign currency lending to short-term trade-related activities because in that case it was easier to fill in any gap between assets and liabilities. He said the short term lending is far less than one year, in most cases for 180 days, back. The official said HBL has lent $60 million in ten months to April 2002 adding that initially the bank started lending to textile sector but it then accommodated borrowers from petroleum and chemical industries as well.

Leasing companies were planning to offer dollar-denominated lease finance to boost their business that is passing through tough times after commercial banks came into leasing business.

Businessmen say there is enough demand for dollar-based lease financing particularly after the opening up of fresh business opportunities in Afghanistan. Dollar-based lease financing would help those businessmen save capital expenditure who need more capital to invest in the war-torn country.

“Even locally the textile industry continues to expand,” says chairman of All Pakistan Textile Mills Association Nadim Maqbool. “In spinning, weaving and value-added sectors there is a lot of expansion still taking place,” he says adding “we are interested in financing our capital needs through cost-effective borrowing.”

“So if leasing companies can offer us cost-effective dollar- based lease finance textile, people would be willing to avail of such facility—if the terms and conditions are acceptable to us.”

Seen in the light of Maqbool’s statement leasing companies’ plan to offer dollar-based lease finance can still work provided banks give them foreign currency loans.

Banks operating in Pakistan are free to offer loans in foreign currency—and as HBL’s $60 million disbursement in ten month shows that the demand has also been on the rise. (The state-run bank had earmarked $40 million for the entire fiscal July/June 2001/ 2002).

But making foreign currency loans to leasing companies becomes difficult only because banks cannot provide for the exchange risk cover on long term loans due to uncertainty about both inflow of foreign exchange as well as exchange rates.

Bankers say one way to encourage banks to offer liberal 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.