Thursday, February 2, 2012

2. Foreign Exchange Banking in PK (Guide)


CHAPTER - II

Foreign Currency Accounts

Opening of Foreign Currency Accounts

Accounts other than Pak Rupees are Foreign Currency accounts. Foreign currency account can be opened only in those branches that have been permitted by SBP to deal in Foreign Exchange. Rules related to foreign currencies are given in SBP’s Foreign Exchange Manual chapter VI. Prudential regulation M-1 to M-5 and all CDD/KYC and AML rules and regulations applicable to Pak rupees accounts are also applicable to Foreign Currency accounts. Further procedure for opening the account and documentation required for different type of accounts are same, that a Pak rupee accounts.

For accounts opened against special permission, in addition to normal documentation SBP approval shall also be made part of documentation 
According to the SBP Foreign Exchange Manual, (chapter VI) following private foreign currency accounts can be opened without prior approval from SBP:

1. Pakistani national resident in or outside Pakistan, including those 
having dual nationality.
2. All foreign nationals residing abroad or in Pakistan.
3. Joint account with resident and non-resident
4. All diplomatic missions and their diplomatic officers.
5. All international organizations in Pakistan.
6. Companies established in Pakistan including foreign share holdings
Charity trust, foundations etc. which are exempted from Income Tax.
8. Branches of foreign firms and companies in Pakistan.
9. Non resident Exchange Companies even if owned by a bank or financial 
institution.
10. All foreign firms, corporations, other than the banks and financial 
institutions owned by the banks, incorporated and operating abroad, 
provided these are owned by persons who are otherwise eligible to 
open foreign currency accounts. 

Foreign Currency accounts whose general permission is given in above cases; should not be fed by:

1. Foreign Exchange borrowed under any general or specific permission 
given by SBP, unless permitted.
2. Any payment for goods exported from Pakistan.
3. Proceeds of securities issued or sold to non residents.
4. Any payment received for service rendered in or from Pakistan.
5. Earning of profit of the overseas offices or branches of Pakistani firms 
and companies including banks,
6. Investment of resident Pakistani abroad.
7. Any foreign exchange purchased from an authorized dealer in Pakistan
for any purpose.

Corporate or legal bodies can not generate funds from the kerb market for deposit in their foreign currency accounts. Foreign currency accounts can be fed by:

A. Remittance from abroad.
B. Travelers cheques issued outside Pakistan (whether in the name of 
foreign currency account holder or any other person).
C. Foreign currency notes.
D. Foreign exchange generated by encashment of securities issued by 
government of Pakistan.

The above accounts are freed from all foreign exchange restrictions except foreign currency account existing as on 28 May 1998 and restrictions were issued vide FE circular No12 of 1998. Accounts covered under FE 12 are transferable from one bank to other. The main points of FE  circular No12 of 1998 were:

I. Withdrawals in foreign currencies from the then existing foreign currency 
accounts – whether maintained by the resident or nonresidents were 
temporarily suspended.
II. Withdrawals were allowed in Pakistan rupees if so desired by the 
account-holders. Payments in such cases could be made at the rate 
of Rs. 46 per dollar and for other currencies, at the rate crossed with 
New York's closing mid-rate for the previous working day.

The facility of foreign currency account is NOT available to the following:

a. Airlines. Shipping companies operating in / through Pakistan or collecting 
passage, freight in Pakistan.
b. Investment banks.
c. Leasing companies/ Modarba companies including those which have 
been granted permission to deal in foreign exchange.


Special Foreign Currency (FC) Accounts for Private Power projects

Banks & DFIs can open special Foreign Currency accounts for private power projects in Pakistan against special permission from SBP. This special permission shall be available as per agreement entered by these companies with Private power and infrastructure board (PPIB) Government of Pakistan. The account will be allowed to maintained, during construction and operation of the project for the following purposes:

1. FC Account in or outside Pakistan for deposit of foreign equity and FC 
loan.
2. FC insurance account for payment of insurance premium and receiving 
insurance claims.
3. Offshore FC control account as per conditions of the agreement signed
with PPIB for operating the project.
4. Offshore FC operating account for meeting operation & maintenance 
of the project.
5. Offshore FC account for meeting disputed payments with the condition 
that the balance will be remitted to Pakistan once dispute is over.
6. Offshore FC account for debt service/ payment.
7. Offshore debt service reserve account, with the condition that the 
maximum balance in this account would not exceed next 12 months 
debt service payment.
8. Offshore FC account for maintenance of reserve, with the condition 
that, permission will expire with the expiry of the agreement and 
account will hold maximum US $ three millions at a time.
9. Offshore FC account for remittance of dividend.

Special permission for foreign currency accounts

SBP on request in writing may issue special permission for opening FC account to the following:

1. Foreign mineral/ oil exploration companies, foreign contractors and 
their sub contractors, subject o the condition that they will meet all 
their expenditure in Pakistan, including salaries of foreign nationals 
in pak rupees, even if it is received from their head office, an the 
conversion shall be on interbank market rates.
2. Firms and companies raising foreign equity or foreign currency loan, 
for receiving and retaining foreign funds. These funds can be used as 
per terms of SBPO FE Manual e.g. imports, consultancy and which 
are related to the business for which account is opened.

Authorized banks / DFIs must submit monthly statement in prescribed format (appendix V-5) along with related documents (import documents, invoices, agreement etc).

Surrender of Foreign Exchange

All citizens of Pakistan and other persons residing in Pakistan continuously for six months or more and posses’ foreign exchange whether in Pakistan or abroad are required to sell such foreign exchange to authorized banks within three months from the date of its acquisition except:
I. Foreign Exchange held abroad by Foreign Diplomats, foreign nationals 
employed by embassies, missions of foreign countries.
II. Foreign exchange held by Foreign National & foreign business houses 
except that foreign exchange which represents business conducted 
in Pakistan or services rendered while in Pakistan. 
III. Foreign exchange held by resident in Pakistan in countries other than 
India, Bangladesh, Afghanistan and Israel provided amount in these 
accounts does not exceed US dollar 1000 or equivalent in that currency.
IV. Afghan currency whether held in Pakistan or outside Pakistan.
V. Foreign national are not allowed to make payment on behalf of Pakistani 
or foreign national residing in Pakistan against pak rupees. This
includes foreign currency accounts maintained by foreign national in 
Pakistan.

Other important points

Pakistani nationals resident in Pakistan are  allowed to open and 
maintain F C account outside Pakistan except in Afghanistan, India, 
Bangladesh and Israel, provided the balance maintained in these 
accounts should not exceed US $ 1000 or equivalent.
Interest paid by the banks to the foreign currency account holders 
shall be reported as sale on the monthly exchange return

F.E. 25 Schemes

Amount of Foreign Exchange accepted out side SBP forward cover scheme i.e. under the provision of SBP F.E. Circular No.25 of 1998 Foreign Exchange is not required to be surrendered to SBP. The banks that accepted such deposits are free to lend, invest money in or outside Pakistan on the rates of currency not exceeding LIBOR (London Interbank Offer Rate) of such date. Main features of the scheme are:

Foreign currency deposits, mobilized under FE 25 Scheme, after netting-off deposits utilized to finance trade relate activities, such as financing against import and export, should not at any point exceed twenty percent (20%) of the local currency deposits of the bank / DFIs at the close of business of the last working day of the preceding quarter. In 2004 SBP has made certain changes in the policy of settlement of FE -25 Loans for Export vide FE circular No16 of 2004, which says that “FE-25 loans against intended exports shall only be settled through realization of export proceeds or remittance from abroad, of FE-25 Loans for Export maturing after Nov 2nd 2000.

Import financing against import bills under FE-25 Scheme can be allowed from the date of import payment by creating foreign currency loan against importer for a maximum period of six months. The repayment can be made by purchasing foreign currency from interbank market on prevailing rate on the date of repayment. The banks can purchase foreign currency from interbank market to cover interest amount and the same should be reported to SBP by submitting “M” form along with monthly foreign exchange returns.

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