Banks allowed to register all foreign currency loans

Will have to ensure assessment of each loan proposal to eliminate risk

KARACHI: The State Bank of Pakistan (SBP) has empowered commercial banks to deal in foreign currency loans of all sizes which are obtained from abroad by the corporate entities operating in the country.

Previously, loans aggregating to over $1 million were required to be registered with the Exchange Policy Department of the State Bank of Pakistan whereas loans of up to $1 million were handled by the respective banks, the central bank said in a statement.

The move is expected to help speed up the process for acquisition of such loans and open new windows of opportunities and responsibilities for the banks.

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According to the new instructions, the respective banks will register the foreign currency loans irrespective of the amount. However, the banks will have to ensure that the loans are compliant with the relevant laws and regulations in force.

Compliance or risk management departments of the authorised dealers (banks) shall be liable to ensure independent assessment of each foreign currency loan proposal/ transaction to eliminate the risk of money laundering and terrorism financing prior to its registration, the central bank said.

For this purpose, the authorised dealers shall conduct appropriate scrutiny of the proposal including particulars of the lender and shall determine the ultimate beneficial ownership in case it is not a financial institution.

In case the lending entity is controlled by residents, the authorised dealers would ensure that their investment abroad is in compliance with foreign exchange regulations. Furthermore, the dealers are also liable to conduct annual focused internal audit of the foreign currency loan registration function.

The minimum tenor of foreign currency loans, raised by corporate entities for working capital needs and by banks for liquidity management purposes, has been reduced to one month, the central bank said.

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“It is expected that these initiatives will help the corporate entities to meet their business needs and will reduce their turnaround time in raising financing from abroad, thus promoting ease of doing business,” the SBP said.

However, prior permission of the SBP will be required for raising the private sector foreign currency loans mobilised through securitised instruments, issuance of bonds and financing under Islamic arrangements; long-term foreign currency borrowing by authorised dealers; and foreign currency borrowing by other financial institutions, the SBP said.

Published in The Express Tribune, December 19^th, 2019.

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