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011017
STATE BANK OF PAKISTAN BANKING SUPERVISION DEPARTMENT CENTRAL DIRECTORATE KARACHI
BSD
Circular No. 38
17th October , 2001
All Commercial Banks.
Dear Sirs,
Guarantee Facility for Confirmation of L/Cs issued by Pakistani Banks.
1. As you
are aware, some international banks, before advising Letters of Credit (L/Cs) issued by
some of the banks registered in Pakistan, require such L/Cs to be confirmed for a variety
of reasons. This confirmation has a cost, which ultimately adds to the cost of imports.
2. To help resolve this issue and to enable
banks registered in Pakistan (Issuing Banks) to have the confirmation of their L/Cs at a
reasonable rates, in respect of certain eligible L/Cs, as defined hereinafter, the
Government of Pakistan (GOP) has negotiated a facility with the Asian Development Bank
(ADB).
3.The ADB facility (Facility) shall be used to guarantee payment to international banks
confirming eligible L/Cs, if the payment obligation under the L/C is not made by the
Issuing Bank and this failure to pay is solely, directly and immediately caused by the
occurrence of certain events which have been pre-agreed between ADB and the GOP.
4. The guarantee so provided will effectively transfer
Pakistan country risk into ADB risk and should ensure continued willingness of
international banks to confirm import L/Cs issued by Pakistani banks used for imports
required for export production.
5. The Facility shall be administered through a
Facility Agent, Standard Chartered Bank in Dubai, which was appointed by ADB, with
concurrence of the Government of Pakistan, to act on ADB’s behalf. The Facility Agent
will act as a conduit between ADB and the guaranteed confirming bank and will also help
promote the Facility internationally and in Pakistan. On behalf of ADB, the Facility Agent
will enter into a Master Risk Participation Agreement (MRPA) with each international bank
that wants to obtain guarantees under the Facility, in lieu of guarantee fees.
6. Annexure I is a list of the international
banks that have, as of the date of this Circular, entered into MRPAs. This list, however,
will change over time as additional international banks sign MRPAs. If an Issuing Bank has
a correspondent banking relationship with an international bank that is not on this list,
but wants to arrange a confirmation of an eligible L/C supported by the Facility by that
international bank, it can contact the Facility Agent who will arrange, on a best
endeavors basis, an MRPA with the intended confirming bank.
7. Each guarantee under the Facility may cover upto
100% of the face value of the L/C, provided that the failure to pay has been caused by
foreign exchange inconvertibility or transferability blockage or other clearly defined
pre-agreed events.
8. The Facility will, however, not guarantee,
indemnify or cover any other risks associated with the performance of the Issuing Bank
including, without limitation, any underlying disputes or defaults between the supplier
and/or beneficiary and the Pakistani importer (Applicant) or the Applicant and the Issuing
Bank with respect to the L/C or otherwise.
9. The salient features of the proposed
arrangements / Scheme are as under: -
Eligible Letters of Credit
10. As already stated, the Facility shall be
available in respect of eligible L/Cs issued by registered Pakistani banks and branches of
international banks operating in Pakistan. Eligible L/Cs for the said Facility will -
a. have a term (i.e.,
validity plus usance, if any) of up to 360 days, The term of the L/C may exceed 360 days
and may extend upto 3 years, on a case to case basis, provided the term of the L/C shall
in no case exceed the remaining period of the ADB Facility. The closing date of the ADB
Facility shall be announced separately.
b. be subject to UCP
500 and irrevocable.
c. be not less than US
$ 5,000/= or equivalent and not more than US$ 1,000,000/= or equivalent. The maximum
amount of L/C may exceed US$ 1,000,000/= on case-to-case basis, after consulting the
confirming bank.
d. be issued in respect
of goods, services, spare parts or capital equipment that originate from ADB Member
Countries; and
e. be issued by a
registered Pakistani bank that meets the minimum paid-up capital requirement and other SBP
prudential regulations, as shown in Annexure II
f. contain the clause :
“Intended for ADB PRG/Country of Origin of Goods ______”.
11. Further, eligible L/Cs must meet the
following criteria, as certified by the Applicant to the intended Issuing
Bank in an Applicant Certificate as set forth in Annexure III,
(a) is issued in respect
of goods that support export production, meeting any of the following criteria,
prevailing on the date of such Applicant Certificate:
are imported by or at the request of an exporter registered by the Pakistan Export
Promotion Bureau; or qualify to be financed under the Foreign Currency Export Finance
Finance Facility, or are linked to other
components under the Government’s Trade Export Promotion and Industry Program
supported by ADB, including schemes such as the Duty and Tax Remission for Exports rules,
Common Bonded Warehouse rules or the Pakistan Export Finance Guarantee Agency; or
are in line with State Bank of Pakistan (SBP) eligibility guidelines (the “SBP
Eligibility Guidelines”), if any, as issued or as amended from time to time by SBP
and advised by SBP by circular or other means accessible to the Applicant and the Issuing
Bank; and
(b) is not used for the
importation of any of the following, prevailing on the date of such Applicant Certificate:
arms, ammunition and other military materials; radioactive and associated materials,
nuclear reactors, and components thereof, fuel elements (cartridges) non-irradiated for
nuclear reactors;
goods, services, spare parts or capital equipment that originate from countries other than
ADB Member Countries; or
luxury goods, consumer goods or other imports which are on SBP’s negative list (the
“SBP Negative List”), if any, as issued or as amended from time to time by SBP
and advised by SBP by circular or other means accessible to the Applicant and the Issuing
Bank.
Applicant Certificate
12. Each
time an Applicant applies with the Issuing Bank,
(a) for an
L/C that is intended to be covered under the Facility, or
(b) for an
amendment is required to an L/c that has already been issued under the Facility
and the amendment involves a change in goods, nature of goods and /or country of origin of
goods, or
(c) for an amendment required in respect of an L/C issued outside the
Facility and through this amendment, the Applicant intends the L/C to be covered under the
Facility;
the Applicant must submit to the intended Issuing Bank, as an attachment to such
L/C application (or amendment), duly completed Applicant Certificate (Annexure III), which
shall be treated by the Issuing Bank as
conclusive evidence that the goods to be imported originate from an ADB member country and
country and meet the eligibility criteria spelt out in
11 above.
13. Upon receiving any Applicant Certificate,
the intended Issuing Bank shall check;
(a) the Applicant
Certificate for consistency with the L/C (or amendment) application;
(b) whether the L/C
applied for (or the L/C, as amended, in the case of
an amendment application) meets the eligibility criteria specified in 10 (a) and 10
(c) above;
(c) that the Applicant Certificate is duly completed;
14. If the intended
Issuing Bank is satisfied with the applicant
certificate as per para 13 above and determines that the L/C (or amendment) applied
for meets the eligibility criteria specified above and eventually issues the L/C, the
Issuing Bank shall insert the following special clause in the L/C: “Intended for ADB
PRG/Country of Origin of Goods ______”. For
SWIFT use Field 47B. Each Applicant Certificate shall be treated as an integral part of
the L/C application and kept in file by the Issuing Bank.
15. Further,
information on the PRG facility is available by accessing the following web address:
www.standardchartered.com/pk/cib/adb.html
Please acknowledge receipt.
Yours faithfully,
Sd/-
(KAZI ABDUL MUKTADIR)
Director
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