Attention of Authorized Dealers is invited to Para 7(v), Chapter 6 of the Foreign Exchange Manual-2016 which, interalia, provides that all FE-25 Loans against exports can only be settled through realization of export proceeds or remittances from abroad.
2. Notwithstanding the above provision, Authorized Dealers (ADs) have been approaching State Bank of Pakistan (SBP) seeking permission to adjust the outstanding loans through interbank market. ADs 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
3. Accordingly, it has been decided that, henceforth, ADs shall extend the FE-25 Loans against exports by strictly observing the following:
i. ADs shall 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 the 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 taking into account the following:Financial soundness/repayment capacity of the borrower.
a. Financial soundness/repayment capacity of the borrower.
b. Borrower’s working capital needs.
c. Export history of the borrower.
d. Market reputation of the borrower.
ii. ADs 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 or part thereof in the following cases:
a. In case of non-shipment, penalty shall be recovered from the date of extension of the loan till settlement of the FE-25 loan.
b. 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 AD 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 alongwith calculation/working sheet to the Director, Foreign Exchange Operations Department, SBP-Banking Services Corporation, Head Office, Karachi.
4. The settlement of FE-25 loans in respect of cases mentioned under Para-3 (ii) above and other overdue cases under the said scheme, where the amount of loan exceeds USD 50,000/- or equivalent in other foreign currencies, shall be allowed by SBP through interbank market on a case to case basis for which ADs may approach the Exchange Policy Department, State Bank of Pakistan, Karachi alongwith the following:
a) Details of the transaction and certified copies of underlying documents.
b) Justification for intended settlement of export loan through interbank market.
c) 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.
d) Recommendations of the bank for settlement of loan through interbank market.
5. 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 the above guidelines. This provision shall be applicable on outstanding loans granted previously as well as on loans to be granted after issuance of this circular.
6. 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 as mentioned at para-3(ii) above.
7. The SBP’s approval for settlement of FE-25 loan through interbank market shall 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.
8. ADs 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.
9. 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.
10. Violation of any rule/regulation/instruction on the part of AD would attract regulatory action under the related provisions of the Foreign Exchange Regulation Act, 1947.
11. All other terms and conditions shall remain unchanged.
12. Please bring the above to the notice of all your constituents and ensure meticulous compliance.