4 September 2012: 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 US$ 1 billion in equivalent local currencies is being implemented from 4 September 2012 and SBP has issued necessary instructions to banks for its implementation after due consultations with various stakeholders and completion of operational formalities with CBRT.
- 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 04Sep2012.
- 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 auctions.
- 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.
- 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.