Authorised dealers allowed to raise foreign currency loan

The State Bank of Pakistan (SBP) has decided to allow authorised dealers (ADs) to raise foreign currency (FCY) borrowing from international financial institutions for converting into Pak rupee (PKR) and using the same (PKR) for liquidity management.
The SBP announced on Friday that the decision was taken to facilitate the authorised dealers however ADs are allowed to borrow foreign currency to a maximum of 50 percent of their unimpaired capital as per their last Audited Financial Accounts.
"The borrowing is permitted in currencies namely USD, EUR, GBP and JPY" the central bank said and added that the minimum tenure of the FCY borrowing should not be less than one 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 instalment after one year. However, frequency of the interest payment may be made in accordance with the related repayment schedule.
Interest may be payable at a rate not exceeding the relevant LIBOR + 1.50 percent. Any exception to the above rate should be referred to Exchange Policy Department, SBP for prior approval.
The SBP said that 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). 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.
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.
"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", the central bank added.