State Bank of Pakistan (SBP) has relaxed the existing policy for banks. It has now delegated powers to banks to settle outstanding export loans valuing up to $50,000/- (or equivalent in other foreign currencies) themselves through interbank market.
The settlement of outstanding loans exceeding the above limit shall, however, require prior approval of the State Bank of Pakistan.
The existing foreign exchange regulations allow Authorized Dealers (banks) to use foreign currency deposits for extending foreign currency trade loan facility to exporters and importers. These regulations however, allow settlement of such loans against exports only through realization of export proceeds or remittances from abroad.
In cases where export proceeds were not realized for any reason including non-performance of export contracts or circumstances leading to cancellation of export contracts after partial performance etc., such loans remained unsettled. Resultantly, authorized dealers were constrained to retain the foreign exchange liabilities on their account books.
Banks have been approaching State Bank of Pakistan (SBP), seeking permission to adjust the outstanding loans through interbank market. They generally quote various reasons for their inability to settle the loan in line with prescribed procedure including non-performance of export contracts/ non-shipment of goods by the exporters, cancellation of the underlying contracts before shipment, non-receipt of proceeds from foreign buyer within the prescribed time period, circumstances leading to cancellation of export contracts after partial performance, or rejection/return of consignment by foreign buyer etc.
SBP directed banks to assess the ability of the borrower to repay loan through repatriation of export proceeds in addition to assessing his repayment capacity in PKR. In this respect, banks shall keep in their record the assessment report for each case prepared by the bank for inspection by the SBP Inspection Team, as and when required. This report should be assessed by risk management department, audited by the internal audit department (AD) and duly approved by the management.
Banks shall ensure that the above loans should be settled in line with the prescribed regulations. However, if the loan is not settled as per the prescribed timelines, ADs shall recover a penalty from the concerned exporter at the rate of one percent per month.
In case of non-shipment, the penalty shall be recovered from the date of extension of the loan till settlement of the FE-25 loan. In case of settlement of the loan after the period prescribed by the State Bank, penalty shall be recovered for delayed period only.
However, in any case, the penalty shall not exceed 10% of the amount of loan. To this effect, the banks should get consent/ agreement signed by the borrower at the time of extending the loan. The amount of penalty shall be deposited through Demand Draft/Pay Order along with calculation /working sheet to the Director, Foreign Exchange Operations Department, SBP-Banking Services Corporation, Head Office, Karachi.
Banks shall maintain complete record of transactions related to settlement of FE-25 loans and shall present the same to SBP Inspection Team for inspection, as and when called for.