Circulars/Notifications - Exchange Policy Department  
 FE Circular No. 03 of 2007
June 15, 2007  

The Head /Principal Offices of all
Authorized Dealers in Foreign Exchange

Dear Sir /Madam,

 

Borrowings in Foreign Currency by Authorized Dealers

In order to facilitate the Authorized Dealers (ADs), it is decided to allow ADs to raise foreign currency (FCY) borrowing from International Financial Institutions for converting into PKR and using the same (PKR) for liquidity management. While borrowing such FCY funds, ADs are required to ensure the following:

1. ADs are allowed to borrow foreign currency to a maximum of 50% of their unimpaired Capital as per their last Audited Financial Accounts.
2. The borrowing is permitted in currencies namely USD, EUR, GBP and JPY.
3. The minimum tenor of the FCY borrowing should not be less than 1 year. The borrowing bank (AD) will be allowed to make payment of the principal amount in bullet at maturity or may start repayment of principal in installment after one year. However, frequency of the interest payment may be made in accordance with the related repayment schedule.
4. Interest may be payable at a rate not exceeding the relevant LIBOR + 1.50%. Any exception to the above rate should be referred to Exchange Policy Department, SBP for prior approval.
5. ADs will not be allowed to offer any security/collateral/guarantee whatsoever to the lenders as the borrowing will be clean and based on balance sheet strength of the borrowing bank (AD).
6. Borrowing bank (AD) will not be allowed to sell such FCY funds out-rightly in the interbank market or to the customers. Similarly, such FCY funds cannot be used by borrowing bank for extending any FCY trade loan facility.
7. Borrowing bank (AD) will be allowed to enter into FCY/PKR sell/buy Swaps in the interbank market. Though, the tenor of these Swaps may range from 1- month to 1-year, however, at any point in time, the outstanding amount of related Net Forward Purchases should not be lower than the FCY amount borrowed under this arrangement.
8. ADs are advised to monthly report FCY transactions on the enclosed format to Banking Surveillance Department and Exchange Policy Department by 10th day of the following month.

The above permission is being granted to the ADs for their liquidity management. However, ADs are expected to exercise utmost prudence while entering into such arrangements.


Enclosure: 01

Yours faithfully,
(Syed Samar Hasnain)
Director
       
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