Financial Risk Manager

Ways of Financial and Risk Management

SBP Allows 100 Percent Advance Payment Against LCs
Tuesday, February 2, 2010

Refer to FE Circular No. 3 dated 29th April, 2008 and FE Circular No. 08 dated 8th July, 2008 in terms of which State Bank restricted advance payments against imports.

It has now been decided by State Bank of Pakistan vide F.E Circular No 1 issued on January 30, 2010 to allow advance payments against letters of credit upto 100% of the FOB or CFR value of the imported goods subject to the following terms and conditions:

The bank will take all possible measures to verify the bonafides and genuineness of the transaction while processing advance payment request and may get the credit worthiness report of the foreign supplier before allowing advance payment.In order to secure advance payment, the bank may also ask the importer to obtain performance guarantee from the supplier’s bank.

The bank will obtain an undertaking from the importer that in case goods are not received for any reason within the period of four months, the bank as well as the customer will ensure repatriation of the advance payment back.

In case the importer is unable to import goods against advance payment within four months or the underlying contract is cancelled, the bank will recover a penalty @1% per month or part thereof on the amount of advance payment from the date of remittance till date of submission of shipping documents or repatriation of advance payment. The bank will deposit the penalty amount with the Exchange Policy Department, State Bank of Pakistan, Karachi through DD/PO. A monthly consolidated statement of all such cases will be submitted by head office of each bank to the Director, Exchange Policy Department, State Bank of Pakistan, Karachi.

If a consistent behavior as mentioned at (c) above is observed where actual imports do not take place against advance payments, Authorized Dealer may debar the concerned importer from making any future advance payments under intimation to Exchange Policy Department, State Bank of Pakistan, Karachi. Strict compliance in this respect be ensured by ADs.

Labels: SBP