KARACHI, Aug 13: Whereas banks say that credit disbursement in foreign currency is picking up in Pakistan, leading exporters complain that the banks are just too choosy about the borrowers.

Initially only foreign banks were lending in foreign currency but from January this year local banks also joined them — and it was state-run Habib Bank that took the lead. Now more than half a dozen local banks are offering foreign currency credit mainly to exporters.

“Our lending in foreign currency has crossed the $70 million mark and we hope it may touch $100 million by December,” says president of state-run Habib Bank Zakir Mahmood. The bank started foreign currency lending in January this year and was the first among local banks to do this. “Other banks are following suit.”

“We have so far accommodated only exporters because foreign currency lending to them is secured,” Zakir says adding that FCY lending to non-exporters can create serious problems. “We will be extremely cautious in foreign currency lending to non-exporters because that may create a mismatch in local and foreign currency cashflow.”

What he means is that if a businessman gets foreign currency loan and for some reason he repays in local currency then the bank will find it difficult to fill in the gap in FCY cashflow.

“Banks are just too choosy...they are giving foreign currency loans only to blue chips...and to those who threaten to change the bankers if they do not get it,” says Vice Chairman of All Pakistan Textile Mills Association Mushtaq Vohra. “Major local banks are reluctant to give foreign currency loans even to the exporters because the interest rate on these loans is much lower than on local currency loans.”

Local and foreign bankers say that they are pricing foreign currency loans at LIBOR plus 1.5-2.5 per cent in most cases. Since LIBOR is slightly below 2 per cent at present the total cost of foreign currency loans comes to around 3.5-4.5 per cent. They say that in some cases the interest rate on FCY loan is a bit higher depending upon the quality of the borrowers.

“In contrast the local currency loans are still priced at 12- 16 per cent,” laments Vohra adding that high cost of borrowing was making businesses unfeasible.

According to the State Bank the weighted average lending rate of all banks combined stood at 12.03 per cent at end-June 2002.

Vohra says liberal lending in foreign currency may eventually lower the financial input cost of the exporters making up for very high utility charges thus balancing the overall input cost.

“Besides borrowing in foreign currency eliminates borrowers’ worry about exchange rate risk.”

Inquiries made by Dawn reveals that though the state-run and local private banks have started lending in foreign currency they are not making a fast progress.

Some leading exporters who refused to go on record told Dawn that the state-run banks were reluctant to lend in FCY due to inefficiency. “It is easier for them to follow the well defined procedure of rupee lending rather than work out modalities of foreign currency lending,” said a leading textile exporter based in Karachi.

But president of state-run National Bank Syed Ali Raza says this is not the case: “Banks basically look at the credit worthiness of the borrowers... whether they choose to borrow in local currency or in foreign currency...it is their prerogative.”

Raza said National Bank had been involved in foreign currency lending for the past eight months and had disbursed a fairly big amount which he said he could not recall offhand. “These loans continue to be repaid periodically...So even if the current stock of outstanding foreign currency loans may not be very huge we have disbursed sizable loans.”

Raza also denied the charge that banks were reluctant to give foreign currency loan because the interest charged on them was lower than the local currency loans. “I think the interest on foreign currency loans is quite decent 2-2.5 per cent plus LIBOR. If we employ our foreign currency deposits with the State Bank we get 1.3 per cent only. So banks are eager to lend in foreign currency to the private sector.”

A foreign banker pointed out that since the cost of raising foreign currency deposit is very low — around 1.0-1.5 per cent banks are earning a fair return if they price their foreign currency loans at 4-5 per cent.