BAIL OUT PACKAGE FOR EXPORT ORIENTED INDUSTRIES

RESCHEDULING FOR LONG TERM BORROWERS

AMANULLAH BASHAR
Jan 26 - Feb 01, 2009

For the first time in last three years, the central bank has realized the financial hardships mainly attributable to the high cost of financing due to ever-rising interest rates. The new Chief of the Central Bank Salim Raza initiated a bold and timely move by offering one-year grace period to the long-term borrowers of the export oriented industries. In fact, the industries in general and export oriented industries in particular are finding themselves in a fix on the back of phenomenal economic slowdown and sliding down commodity demand worldwide on one hand and rising cost of financing primarily due to policy rate of the state bank of Pakistan during last three years altogether have a wide spread impact specially on SMEs which are stated to be on the verge of collapse. Realizing the situation, the new chief of the central bank has allowed one year grace period to the export oriented industries to avoid potential danger of defaults, which were bound to add to the infected portfolio of the banking sector at a massive scale.

The industrial houses while welcoming the timely step taken by the central bank have raised an accusing finger at the former chief of the central bank Dr. Shamshad Akhtar, who was on a three year-leave from Asian Development Bank, served the interests of the International donor agencies only instead of advising the government on the possible repercussions of the endless increase in the policy rate which consequently made it economically unviable to do business in Pakistan.

Eng. M.A. Jabbar, Chairman SITE Association of Industry, the former SBP Governor should be held accountable for her ill-advices to the government during her tenor of three years.

Mian Zahid Hussain, Chairman Korangi Association of Trade & Industry has however remarked that the bailout package to the export oriented industries is discriminatory attitude of the central bank as the entire industrial scenario was exposed to the financial crisis and facing the situation similar to the export oriented industries. In fact, in one way or the other the industries are the part of the export regime and supplementing the efforts of the industries engaged in direct exports.

Mian Zahid also suggested that the conditions in the bail out package are so harsh that even the export oriented industries would hardly take advantage of the relief package, hence the situation calls that the scope of the bail out package should be expanded to include rest of the industries and adopt a helping out attitude instead of creating complexities for the industries. The KATI Chairman regretted that Shaukat Tarin Advisor to the Prime Minister on Finance had promised to announce a comprehensive bailout package to the entire industrial community of the country, however that promise has yet to be honored. He suggested that instead of doing things in pieces the government should take the stakeholders both in trade and industry in confidence to face the situation in a concerted manner.

PACKAGE

Meanwhile, the commercial banks and DFIs have been allowed to provide grace period to their deserving borrowers having availed financing under Long Term Financing for Export Oriented Projects (LTF-EOP) including Debt Swap Facility under LTF-EOP Scheme and Long Term Financing Facility (LTFF) Scheme. Accordingly, banks/DFIs may wish to provide deferment of one year in repayment of principal outstanding under the above schemes as of 31st December 2008.

Under this facility the repayment dates for all installments of principal amounts falling due during the period from 1st January to 31st December 2009 may be re-fixed after a period of one year from the respective due date.

For this purpose, banks/DFIs shall carry out their due diligence of the individual borrowers on case to case basis. The requests for availing the subject facility from eligible borrowers shall be considered by banks/DFIs as per following criteria: -

Banks/DFIs shall take into account the track record, conduct of account, underlying collateral, financial condition and future outlook, volume of exports and overall risk profile of the borrowers in evaluating their requests for availing this facility.

In case the banks/DFIs are satisfied with the borrower and the underlying credit risk is acceptable to them, they can provide the grace period of one year under this facility.

In case a loan has already been rescheduled by a bank/DFI as per its policy or in case a borrower has defaulted in repayment of installment(s) fallen due, as per original repayment schedule, and/or payment of mark-up on due dates, such cases would not be eligible for the benefit under these instructions.

The concerned bank/DFI will also evaluate the general behavior of the borrowers concerned in all other financing facilities extended to them by the bank/DFI. No benefit under this circular should be given to the borrowers having non-performing loans, classified under SBP Prudential Regulations.

While preparing revised repayment schedule banks/DFIs will adhere to the original terms of repayment schedule already agreed at the time of grant of refinance (i.e. the original grace period & principal amount of installments shall remain the same and only dates of repayment will be changed). The Offices shall, however, check the accuracy of such revised repayment schedules as per their record to ensure that no grace period is granted for a period exceeding one year.

The borrowers who have already repaid LTF-EOP/LTFF loans shall not be eligible for reimbursement of the same. Similarly in case a loan is not payable during 2009 as per its original repayment schedule, it shall not qualify for the benefit under these arrangements. Only loans outstanding as of 31st December 2008 shall qualify for the benefit of grace period. As such, the loans disbursed on or after January 1, 2009 shall not qualify for said benefit.

The borrowers interested in availing the benefit under this circular shall approach to the concerned banks/DFIs, which shall process their requests in line with parameters prescribed in Para 2 above and as per their respective policies.

In case of consortium financing, Head Offices of member banks/DFIs will forward their recommendations to lead bank/DFI for final approval.

The concerned office of SBP BSC (Bank) will also adjust repayment of its refinance accordingly from the concerned banks/DFIs only in respect of such borrowers to whom grace period facility shall be granted by the financing banks/DFIs or a lead bank/DFI, in case of consortium financing.

After approval from Head Office the concerned branches of banks/DFIs shall approach the concerned offices of SBP-BSC along-with copies of revised repayment schedules to defer the principal amount of installments for one year.

The banks/DFIs shall keep on record the basis for grant of said benefit to the borrowers concerned which shall be checked by Banking Inspection Department (BID) during inspection of the banks/DFIs to ensure that this has been allowed as per laid down criteria. Any discrepancy (ies)/ delinquency (ies) pointed out by BID shall be subject to penal action, as per provisions of Banking Companies Ordinance. Any penalty levied in this context shall not be passed on to the borrowers concerned.

This is a one-time facility effective from the date of issuance of the circular and will remain valid only up to March 31, 2009. Any request received after March 31, 2009 shall not be considered by banks/DFIs. Banks /DFIs are advised to circulate these instructions to their branches and constituents for meticulous compliance.

PAKISTAN'S LIQUID FOREIGN RESERVES POSITION

The total liquid foreign reserves held by the country stood at $ 9,948.7 million on 17th January, 2009.

The break-up of the foreign reserves position is as under: -

i) Foreign reserves held by the State Bank of Pakistan: $ 6,584.6 million
ii) Net foreign reserves held by banks (other than SBP): $ 3,364.1 million
iii)Total liquid foreign reserves: $ 9,948.7 million