CHAPTER - III
Forward Exchange Facilities
According to the chapter IV of the SBP foreign exchange manual, Banks and DFIs can enter into forward purchase and sale of foreign currencies against genuine and firm transactions of approved nature.
Forward cover can be provided even if letter of credit has been opened through an other bank or export documents have been handled by an other bank. In that case cover shall be provided on the basis of a certificate indicating that no cover has been provided by the concerned bank or DFI against the transaction.
Bank can provide forward cover for export, import, foreign private loan, and repatriable foreign currency loan within the relevant provisions of SBP manual. No forward cover transaction can be made for period of less than one month.
Forward purchase of foreign exchange against “Export of Goods” Banks can purchase foreign currencies forward for delivery up to six and half months from the last date of shipment as provided in the contract/ letter of credit. Purchase on consignment basis may be made at any time after shipment has taken place but last date of delivery should not fall after six and half months from the date of shipment
Incase of export of goods to be invoiced in any convertible currency other than US Dollar it is permissible to buy forward cover in term of US dollar. On realization of export proceeds, dollar amount at booked rate will not be delivered but equaling rupee at spot rate will be paid to the exporter.
Forward sale of foreign exchange against “import of goods”.
Authorized branches of banks and DFIs may sell foreign currencies forward to cover import to Pakistan on cash basis under letter of credit or registered contract. The sale contract may be booked any time after opening the letter of credit or registration of contract. A forward sale against Usance bill can
be made but it will be up to the date of maturity of the bill.
Forward sale facility is not available for:
I. Crude oil and POL products.
II. Import by federal / provincial government, corporations. department
with majority govt holding, other than TCP and those public sector
companies who export some part of their products
III. Sale of foreign exchange to overseas banks branches and
correspondents to cover rupees bills negotiated by them under letter
of credit.
SBP Forward cover Scheme
Under the SBP forward cover scheme, the banks and DFIs can fix their own rate of interest on F C term deposits ranging from 3 months, to 3 years provided these rates do not exceed to average bid rates provided by the British bankers association (BBA) for different currencies on previous working day plus margin prescribed by SBP.
Under this scheme SBP provides foreign currency on future date on a rate agreed today. This provides help to the importers in calculating correct cost of goods to be imported. SBP provides forward cover on deposits and interest in multiple of US $ 1000, GBP 1000, Euro 1000 and Japnani Yen 250, 000. Fee is payable on full amount of forward cover. The maximum rates for payment of interest allowed by SBP are daily published by Foreign Exchange Rates committee.
Other important points
• Banks and DFIs can freely enter into forward transactions, with each
other provided their exposure remains within prescribed limit
• To cover transactions of their customers, dealers of the banks can
enter into forward transaction with their overseas branches/
correspondents, in respect of currencies other than US Dollars.
• Banks can provide forward cover to the investment banks, leasing
companies, and Modarba companies holding restricted authorized
dealers liscence, in respect of the funds mobilized by them from
abroad, against issuance of certificate of investment and surrendered
to State Bank.
• Forward contract can be extended on roll over basis even for less
than one month, if export proceeds is not realized on due date or
import bill could not be paid in accordance to the terms of letter of
credit / registered contract. Such extension would be made by closing
the original contract and booking a fresh contract at new rate.
• If a Usance export bill against which forward cover is taken is presented
for negotiation/ discounting during option delivery period, it can be
treated as delivery against the contract. In all other cases discounting
will not be treated as delivery and the bill will be discounted at current
applicable rate and deal will be closed on maturity.
• Forward contract which are not taken up will be closed on maturity.
Difference with prevailing rate will be recovered or paid to the customer
as the case may be.
• If in a particular case SBP is not satisfied with the transaction of which
forward cover has been booked, it may direct bank to cancel the
forward contract.
Forward cover against Foreign Currency Accounts
Persons maintaining foreign currency account in Pakistan can sell forward balance held in their foreign currency account, to the importers against letter of credit / order registered with the bank. Following procedure shall be adopted:
I. The account holder (seller) and importer should deal under intimation
to the bank where account is maintained.
II. For smooth conduct of the transaction it is necessary, that the account
holder and the importer should be from the same bank.
III. The seller will instruct the bank to mark lien on the F C account up to
the amount of the deal.
IV. The bank will make separate deal with the arrangement with the
importer for recovery of rupee equaling amount of deal at the rate
agreed between seller and importer.
V. When the documents will be arrived within validity of the deal, bank
will debit FC account of the seller, take delivery of the amount from
SBP; take F C amount in nostro account for settlement of LC documents,
same as inward remittance and credit rupee account of the seller.
VI. Bank will lodge LC documents in their books at the rate agreed between
importer and the seller and will retire documents in usual arrangement.
VII. Transaction shall be reported in monthly returns in normal way i.e.
“Form I schedule E-2.
VIII. In case importer fails to avail the contract, it will be closed; difference
of rate if any shall be settled on maturity date as other forward sale
contracts are closed.
Foreign Currency accounts of the banks and sale of foreign currency
The authorized banks are permitted to open and maintain account in all fully convertible currencies with their branches and correspondent abroad. The details of these accounts must be reported to the Director Exchange policy department SBP.
All foreign currency balances of the authorized banks /DFIs shall be at the disposal of SBP all the times. SBP may direct authorized banks to sell ready or forward delivery of foreign currencies held by them to SBP or to any person/ institution SBP may decide.
Exposure Limit and Nostro Limit
SBP from time to time fixes foreign exchange exposure limit for each bank authorized to deal in foreign exchange. These limits are intended to cover position of all branches in Pakistan of the banks incorporated abroad and all the branches and overseas branches of the bank incorporated in Pakistan. The head office of the banks should ensure that these limits are not
exceeded. It is advisable that banks maintain square or near square position. These are no “Nostro limits for the balances held abroad.
Exchange exposure position
All authorized banks are required to report to Exchange & debt management department SBP all foreign exchange transactions that create foreign exchange exposure in any currency using the software installed by SBP on each banks computer. A floppy along with following reports duly signed by authorized officer must be submitted to Exchange & debt management department SBP:
a) Deals
b) Take-ups
c) Canceled deals
d) Adjusting entries
e) Closing balance
Other important points
• There is no restriction on purchase of foreign currency (inward
remittances) but sale of foreign currencies (outward remittances) can
be made against SBP approval under powers delegated to authorize
banks.
• Authorized banks can freely buy and sale foreign exchange from each
other within permissible exposure limit.
• SBP can buy or sale US dollars with authorized banks in ready and
forward contract.
Authorized banks can freely purchase foreign currency from each other and from their overseas branches and correspondents both as ready and forward contract.
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