RIZWAN BHATTI

KARACHI: In order to ensure the timely realization of export proceeds, the State Bank of Pakistan (SBP) has delegated powers to banks (Authorized Dealers) for settlement of outstanding export loans amounting to upto USD 50,000/- themselves through interbank market.

As per Para 7(v), Chapter 6 of the Foreign Exchange Manual-2016 all FE-25 Loans against exports can only be settled 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 above foreign exchange liabilities on their books of accounts.

In order to address these difficulties and to facilitate exporters /Authorized Dealers, the State Bank has relaxed the existing policy regarding settlement of subject outstanding loans against exports by delegating powers to Authorized Dealers to settle outstanding export loans valuing upto USD 50,000/- or equivalent in other foreign currencies themselves through interbank market. The settlement of outstanding loans exceeding the above limit will, however, require prior approval of the State Bank.

Authorized Dealers (ADs) were approaching State Bank of Pakistan for permission to adjust the outstanding loans through interbank market. ADs generally cite 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

Accordingly, it has been decided that, henceforth, ADs will extend the FE-25 Loans against exports by strictly observing all risks and financial soundness of borrower.

ADs have been asked 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, ADs shall keep in their record the assessment report for each case prepared by a bank for inspection by the SBP Inspection Team, as and when required. This report should be assessed by risk management department, audited by internal audit department and duly approved by the management as per the bank’s policy.

Banks will be required to assess repayment capacity of the borrower, working capital needs, export history and market reputation of the borrower.

ADs will also ensure that the loans should be settled in line with the prescribed regulations. However, if the loan is not settled as per the prescribed timelines, ADs will recover a penalty from the concerned exporter at the rate of one percent per month.

In case of non-shipment, penalty will be recovered from the date of extension of the loan till settlement of the FE-25 loan. While, in case of settlement of the loan after the period prescribed by the State Bank, penalty shall be recovered for delayed period only.

However, SBP has mentioned that in any case, the penalty will not be exceeded 10 percent of the amount of loan. To this effect, the ADs should get consent/agreement signed by the borrower at the time of extending the loan. The amount of penalty shall be deposited alongwith calculation/working sheet to SBP.

The settlement of FE-25 loans and other overdue cases under the said scheme, where the amount of loan exceeds USD 50,000/- or equivalent in other foreign currencies, will be allowed by SBP through interbank market on a case to case basis.

ADs may approach the Exchange Policy Department, SBP along with details of the transaction and certified copies of underlying documents, justification for intended settlement of export loan through interbank market and a certificate from bank’s internal audit department that the loan was disbursed after satisfying with the financial health and repayment capacity of the borrower in line with rules and regulations governing FE-25 Loans.

Further, the bank has exhausted all efforts/means to get the loan settled by the exporter in line with the prescribed instructions and recommendations of the bank for settlement of loan through interbank market.

As regards outstanding loans amounting to USD 50,000/- or below, the respective AD may settle the loan itself through interbank market subject to observance of these guidelines. This provision will be applicable on outstanding loans granted previously as well as on loans to be granted after issuance of this circular.

While, in case the exporter fails to settle the loan amount as per the prescribed procedure, ADs may convert underlying foreign exchange liability into PKR after recovery of penalty.

The SBP’s approval for settlement of FE-25 loan through interbank market will not affect adjudicating proceedings, if in progress, with the Foreign Exchange Adjudication Department, SBP-BSC against exporter/AD in connection with repatriation of export proceeds from abroad.

ADs have been asked for maintaining complete record of transactions related to settlement of FE-25 loans with a view to presenting the same to SBP Inspection Team for inspection, as and when called for.

SBP has also made it clear that if at any stage, it is established that the exporter has misutilized the loan, he will not be eligible to avail such facility in future.

In addition, violation of any rule/regulation/instruction on the part of AD would attract a suitable regulatory action under the related provisions of the Foreign Exchange Regulation Act, 1947.