Wednesday, 05 September 2012 16:08:04
Currency swap with Turkey in place: SBP
KARACHI, Sept 4 (APP): The three-year bilateral Currency Swap
Arrangement (CSA) between the State Bank of Pakistan (SBP) and the
Central Bank of Republic of Turkey (CBRT) amounting to $ 1 billion in
equivalent local currencies is being implemented from Tuesday.
According to SBP, necessary instructions have been issued to
banks for its implementation after due consultations with various
stakeholders and completion of operational formalities with CBRT.
A bilateral CSA was signed between SBP and CBRT by SBP Governor,
Yaseen Anwar and CBRT Governor, Erdem Basci in presence of the
Presidents of the Islamic Republic of Pakistan and the Republic of
Turkey in November last year.
Objectives & Structure of CSA: The objective of the currency swap
is to 1) promote bilateral trade between the two countries in the
respective local currencies and 2) any "Other" purpose as mutually
agreed between the two central banks. Since the CSA is a bilateral
financial transaction, all terms & conditions apply equally to both
countries and the pricing is based on standard market benchmarks which
are widely acceptable in the respective domestic markets.
Implementation Guidelines from SBP: Currency Swap Agreement
between the two Central Banks will give a positive signal to the
market on the availability of liquidity of other country's currency in
the onshore market. The arrangement will augment the pool of liquidity
available to finance bilateral trade between the two countries,
supplementing the already available sources of liquidity.
By virtue of this arrangement, SBP will have the ability to draw
on the swap line and provide Turkish Lira (TRY) to banks in Pakistan.
Banks will on-lend this liquidity to importers/ exporters involved in
trade denominated in TRY. At maturity, the importer/exporter will
repay the foreign currency to the lending bank, which in turn will
repay to the respective central bank.
In order to ensure transparency in determination of market
interest rates, the State Bank of Pakistan has decided to conduct
competitive auctions of Turkish Lira (TRY) Loan Facility as under:
All commercial banks will be allowed to take FE-25 deposits and
extend FE-25 loans in Turkish Lira (TRY) for financing of Imports/
Exports in accordance with SBP's prevailing instructions on FE-25
loans/deposits. Necessary instructions to that effect have been issued
vide FE Circular No. 4 dated 4 September 2012.
In order to provide TRY funding to scheduled banks, so that they
can on-lend the TRY to importers / exporters with underlying Trade
documents in TRY, SBP will conduct competitive auctions of Turkish
Lira (TRY) Loan Facility using proceeds drawn under the Currency Swap
Arrangement with CBRT.
Participation in auctions will be dependent on the submission of
documentary evidence of Export or Import bills denominated in TRY, SBP
will conduct "uniform price" competitive TRY auctions in 3 and 6 month
tenors. All scheduled banks will be eligible to participate in such
Further details on the utilization of TRY in Pakistan on account
of PKR/TRY swap are as follows:
a) Importers with underlying trade documents denominated in TRY:
On the maturity date of the letter of credit (LC), the importer will
pay off the overseas supplier by borrowing in TRY. Assuming borrowing
is for 6 months, the importer will save on the rupee cost and after
six months the importer will buy TRY against PKR and pay off the TRY
loan. Availability of onshore TRY financing will encourage importers
to open TRY denominated LCs.
b) Exporters with underlying trade documents denominated in TRY:
Once the contract is established, the exporter will borrow in TRY,
sell TRY against PKR and utilize PKR for its local operations. On the
maturity date of the contract, the exporter will receive TRY from the
overseas buyer and payoff the TRY loan locally.
All banks are expected to educate their customers on the
additional option of denominating their Trade documents in TRY. SBP
would encourage banks to hold sessions with local Trade bodies. All
importers/ exporters are also requested to contact their respective
banks for more details on how they can borrow Turkish Lira (TRY)
liquidity to finance bilateral trade.