Export proceeds in USD: ECs allowed forward sale transactions with banks

Updated 26 Feb, 2021

KARACHI: The State Bank of Pakistan (SBP) Thursday allowed Exchange Companies forward sale transaction with banks up to 5 working days against export proceeds in dollars.

The Exchange Companies Manual already allowed the Exchange Companies to sell foreign exchange in Ready, Tom and Spot value dates, with banks as counterparty (Interbank Market).

Now, the SBP has allowed that Exchange Companies may enter into forward sale transaction with banks up to 5 working days against export proceeds in US dollars aimed to facilitate them in managing exchange rate risks associated with realization of export proceeds against export of permissible foreign currency notes.

According to SBP, as per new sub-para (e) (i) at Para (9) of Chapter (3) ibid of the exchange companies’ manual, Exchange Companies may sell forward the export proceeds received from abroad in US Dollars to banks against the export of permissible foreign currencies made on consignment basis through cargo/security companies subject to adherence of some terms and conditions:

As per directives, forward sale facility may be availed up to maximum five working days (including both transaction and settlement days).

In case Exchange Companies sell forward the export proceeds for less than five working days, forward sale period may be extended provided that the total period of forward sale, including the extended period, does not exceed five working days (including both transaction and settlement days). However, such extensions will be made by closing out the original contract and booking of a fresh contract at the new rate.

Exchange Companies are allowed to book the Forward sale may before or after the export shipment and no substitution is allowed for settlement of export proceeds.

Exchange Companies are required to bring export proceeds within 5 working days from the date of shipment. In case forward sale is booked on or after the shipment date, maximum maturity date of forward sale facility may be up to 5th working day of shipment date. Forward sale may be booked for full or partial value of export proceeds against export shipment.

Forward sale will be booked based on specific export shipment. For this, Exchange Company shall provide copy of export documents including deal ticket confirmed with foreign buyer to the bank. In case of advance booking, Exchange Companies will submit copy of deal ticket confirmed with foreign buyer to the bank, while copy of other export documents will be submitted subsequent to the shipment.

Forward contracts, which are not taken up, may be closed out on the date of maturity at prevailing spot rate. Exchange gain, if any, will not be passed on to the Exchange Company, rather the same will be deposited in favor of State Bank of Pakistan by the bank. To this effect, the Exchange Companies are required to provide their consent/agreement in writing as prescribed by the bank before entering into forward contract.

Further, sub-para (i) of Para (4) of Chapter (5) ibid stands revised that “Exchange Companies exporting permissible foreign currencies shall repatriate equivalent US Dollars in their foreign currency accounts maintained with banks in Pakistan. Such US dollars against exports must be credited in foreign currency accounts within five working days from the date of export of foreign currencies”.

In addition, the SBP has also issued another circular to the authorized dealers and allowed them to may purchase forward the export proceeds in US Dollars received from abroad against export of permissible foreign currencies by Exchange Companies.

In addition, Authorized Dealers may continue to purchase foreign exchange in Ready, Tom and Spot value dates, from Exchange Companies.

Copyright Business Recorder, 2021

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