SBP reduces Exchange Companies SLR requirement

The State Bank of Pakistan (SBP) on Thursday has announced to decrease the Statutory Liquidity Reserve (SLR) requirement of Exchange Companies from 25 percent of Paid-up Capital to 15pc.

"The enhanced liquidity with exchange companies will enable them to further channelize home remittances and foreign exchange," said SBP.

"During the year ended June 2020 Exchange Companies, through their tie-up arrangements abroad, have channelized home remittances of USD 1.44 billion, while this figure stands at USD1.67 billion for ten months of the current year (FY 20-21)," informed the central bank.

Under previous SBP instructions, Exchange Companies were required to maintain 25 percent of Paid-up Capital as SLR with the State Bank of Pakistan. The amount of SLR may be kept in current account maintained with SBP as well as invested in unencumbered approved government securities through SBP’s Subsidiary General Ledger Account (SGLA) facility.

However, in order to facilitate Exchange Companies in managing their liquidity and enhance their business profitability, the requirement of SLR has been decreased from 25pc to 15pc of paid-up capital of Exchange Companies, said the central bank in a circular.

Accordingly, the related instructions contained in the following paras of Exchange Companies Manual stand replaced, as under Para (3) of Chapter (3): “Fifteen (15) percent of the paid-up Capital shall be maintained as Statutory Liquidity Reserve (SLR) with the State Bank in the form of cash and/or unencumbered approved government securities. State Bank would extend current account and SGLA facilities to Exchange Companies.”

Whereas, under sub-para (ii) (f) of Para (2) of Chapter (4): “Franchise Deposit’ is treated as “Second Tier Capital” in the books of the Franchiser. For the purpose of calculation of 15% SLR requirement and 50% of the Exposure Limit, this “Second Tier Capital” is added to the paid-up capital of the Franchiser.

As per SBP instructions, at any point of time, combined exposure of Franchiser and Franchisee should not exceed 50% of the sum of paid-up capital and Second Tier Capital (Franchise Deposit) of the Exchange Company.”

SBP said that this regulatory intervention would provide increased liquidity to Exchange Companies to enable them to play their role in increasing the remittances flow and the public will be further facilitated in timely and conveniently receiving home remittances from more than 1,200 outlets of Exchange Companies across Pakistan.

The central bank informed that presently out of twenty-seven exchange companies of ‘A’ category, 18 exchange companies are providing home remittances services.