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SBP Allows One-year Grace Period on Long Term Financing Facility

KARACHI (January 23 2009): The State Bank of Pakistan (SBP) has given a one year grace period on loans availed under the Long Term Financing Facility (LTFF) scheme. The circular to this effect was issued on Thursday following the demand put forth by Dr Ikhtiar Baig on behalf of export oriented industry.

As a result around Rs 11.8 billion due in the year will get pushed back by 12 months.

Detailed qualification for availing this relief is given in the following circular: “On the representation of industry associations, it has been decided to allow banks and DFIs to provide a grace period to their deserving borrowers having availed financing under Long Term Financing for Export Oriented Projects (LTF-EOP) including Debt Swap Facility under TLF-EOP Scheme and Long Term Financing Facility (LTFF) Scheme.

Accordingly, banks/DFIs may wish to provide deferment of one year in repayment of principal outstanding under the above schemes as of December 31, 2008. Under this facility the repayment dates for all instalments of principal amounts falling due during the period from 1st January to 31st December 2009 may be re-fixed after a period of one year from the respective due date.

For this purpose, banks/DFIs shall carry out their due diligence of the individual borrowers on case to case basis. The requests for availing the subject facility from eligible borrowers shall be considered by banks/DFIs as per following criteria:

(a) Banks/DFIs shall take into account the track record, conduct of account, underlying collateral, financial condition and future outlook, volume of exports and overall risk profile of the borrowers in evaluating their requests for availing this facility.

(b) In case the banks/DFIs are satisfied with the borrower and the underlying credit risk is acceptable to them, they can provide the grace period of one year under this facility.

(c )In case a loan has already been rescheduled by a bank/DFI as per its policy or in case a borrower has defaulted in repayment of instalment(s) fallen due, as per original repayment schedule, and/or payment of mark-up on due dates, such cases would not be eligible for the benefit under these instructions.

(d) The concerned bank/DFI will also evaluate the general behaviour of the borrowers concerned in all other financing facilities extended to them by the bank/DFI. No benefit under this circular should be given to the borrowers having non-performing loans, classified under SBP Prudential Regulations.

(e) While preparing revised repayment schedule banks/DFIs will adhere to the original terms of repayment schedule already agreed at the time of grant of refinance (ie the original grace period & principal amount of instalments shall remain the same and only dates of repayment will be changed). The Offices shall, however, check the accuracy of such revised repayment schedules as per their record to ensure that no grace period is granted for a period exceeding one year.

(f) The borrowers who have already repaid LTF-EOP/LTFF loans shall not be eligible for reimbursement of the same. Similarly in case a loan is not payable during 2009 as per its original repayment schedule, it shall not qualify for the benefit under these arrangements. Only loans outstanding as of 31st December, 2008 shall qualify for the benefit of grace period. As such, the loans disbursed on or after January 1, 2009 shall not qualify for said benefit.

The borrowers interested in availing the benefit under this circular shall approach to the concerned banks/DFIs which shall process their requests in line with parameters prescribed in Para 2 above and as per their respective policies.

In case of consortium financing, Head Offices of member banks/DFIs will forward their recommendations to lead bank/DFI for final approval, the concerned office of SBP-BSC (Bank) will also adjust repayment of its refinance accordingly from the concerned banks/DFIs only in respect of such borrowers to whom grace period facility shall be granted by the financing banks/DFIs or a lead bank/DFI, in case of consortium financing.

After approval from Head Office the concerned branches of banks/DFIs shall approach the concerned offices of SBP-BSC along-with copies of revised repayment schedules to defer the principal amount of instalments for one year.

The banks/DFIs shall keep on record the basis for grant of said benefit to the borrowers concerned, which shall be checked by Banking Inspection Department (BID) during inspection of the banks/DFIs to ensure that this has been allowed as per laid down criteria. Any discrepancy (ies)/ delinquency (ies) pointed out by BID shall be subject to penal action, as per provisions of Banking Companies Ordinance. Any penalty levied in this context shall not be passed on to the borrowers concerned.

This is a one-time facility effective from the date of issuance of the circular and will remain valid only up to March 31, 2009. Any request received after March 31, 2009 shall not be considered by banks/DFIs. The SBP advised the Banks /DFIs to circulate these instructions to their branches and constituents for meticulous compliance.

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