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FERA Flashcards

1
Q

What are the conditions under which foreign controlled companies can borrow in PKR?

A

Foreign controlled companies registered under the Companies Act, 2017, can borrow in PKR for any purpose except purchasing shares, subject to Prudential Regulations and KYC/AML/CFT standards. The purpose must be clear and documented.

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2
Q

Can non-resident Pakistanis obtain loans in local currency for purchasing immovable property?

A

Yes, subject to Prudential Regulations and KYC/AML/CFT standards, but the loan must be liquidated through remittances from abroad or debit to their foreign currency accounts, and sale proceeds of the property are not repatriable.

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3
Q

Can resident foreign nationals borrow in PKR?

A

Yes, except for purchasing immovable property or purposes restricted by the State Bank or law, subject to Prudential Regulations and KYC/AML/CFT standards.

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4
Q

Are non-residents allowed to borrow or lend in local currency without permission?

A

No, except as specified in paragraph 3 for non-resident Pakistanis and resident foreign nationals, special permission from the State Bank is required.

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5
Q

What is required for Authorized Dealers to extend PKR loans against guarantees from non-residents?

A

Authorized Dealers can extend PKR loans against non-resident guarantees or collateral outside Pakistan, subject to Prudential Regulations. Guarantees involving FCY outflows (e.g., fees) require prior State Bank approval.

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6
Q

Can Authorized Dealers grant loans in foreign currency without approval?

A

No, except for FE-25 loans, prior State Bank approval is required, with details of purpose, guarantee/collateral, and repayment method provided.

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7
Q

What is PSBA?

A

Private Sector Borrowings from Abroad refers to foreign currency loans raised by eligible private sector borrowers in Pakistan from foreign lenders, including commercial credit, supplier’s credit, and bonds.

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8
Q

Who are eligible borrowers for PSBA?

A

Companies registered under the Companies Act, 2017 (except financial intermediaries), IPPs, and branches of foreign companies permitted by the BOI. Long-term credit rating must be BB- or higher, except for intercompany loans or exporters (up to 80% of annual exports).

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9
Q

Who are eligible lenders for PSBA?

A

Internationally recognized sources like foreign banks, multilateral institutions (e.g., IFC, ADB), export credit agencies, suppliers, and parent/associated companies, complying with AML/CFT standards.

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10
Q

What are the common terms for PSBA?

A

Include eligible borrowers/lenders, security (movable/immovable property), registration by Authorized Dealers, forward cover, pre-payment restrictions (except project financing with approval), and prior approval for waivers.

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11
Q

What is the minimum maturity for PSBA for Project Financing?

A

Three years, used for capitalized project costs (e.g., plant & machinery, expansion), not for onward lending or capital market investment.

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12
Q

What is the borrowing cost ceiling for PSBA for Project Financing with maturity over five years?

A

600 basis points over the relevant benchmark rate, including spread, insurance, and fees (excluding commitment fees and local costs).

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13
Q

Can PSBA for Project Financing be converted into equity?

A

Yes, after project completion or 3 years (whichever is later), with State Bank approval, at break-up value (unlisted) or six-month average market value (listed).

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14
Q

What is the maturity range for PSBA for Working Capital?

A

One month to one year, for foreign currency working capital needs, renewable for a minimum of one month.

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15
Q

What is the borrowing cost ceiling for PSBA for Working Capital?

A

200 basis points over the relevant benchmark rate.

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16
Q

What terms apply to foreign contractors borrowing PSBA for Working Capital?

A

Interest-free loans from sponsors/parents, repayable after project completion or milestone, with clearance/exemption certificate from Revenue Authorities.

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17
Q

What is PSBA for Bridge Financing used for?

A

To meet financing gaps from outstanding project payments or delays in equity/PSBA disbursements, with maturity from six months to one year.

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18
Q

What is the borrowing cost ceiling for PSBA for Bridge Financing?

A

200 basis points over the relevant benchmark rate.

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19
Q

Does PSBA through securitized instruments or bonds require approval?

A

Yes, prior State Bank approval is required, with ‘in-principle’ approval before execution and formal approval after submitting agreements.

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20
Q

What is FTFA?

A

Foreign Currency Trade Financing from Abroad refers to credits extended by overseas suppliers, buyers, or banks for imports/exports (e.g., letters of credit).

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21
Q

Who can raise FTFA?

A

Companies registered under the Companies Act, 2017, chamber of commerce members (except financial intermediaries), and foreign company branches/subsidiaries approved by BOI, with a BB- credit rating (except intercompany loans).

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22
Q

What is the minimum transaction size and maturity for Import Loans under FTFA?

A

Over USD 5 million, with a minimum maturity of 2 years.

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23
Q

What is the borrowing cost ceiling for Import Loans under FTFA?

A

350 basis points over the relevant benchmark rate for maturities of 2 to 5 years.

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24
Q

What is the maximum tenure for Export Loans under FTFA?

A

The repatriation period for export proceeds plus 60 days, for exporters with firm commitments.

25
Can exporters use Export Loans under FTFA and local export finance simultaneously?
No, using FTFA excludes eligibility for local export finance or the Export Refinance Scheme for the same commitment.
26
What is FSBA?
Financial Sector Borrowings from Abroad refers to foreign currency borrowings by financial sector entities in Pakistan from international lenders.
27
Who are eligible borrowers for FSBA?
Banks, financial institutions, DFIs, housing finance companies, NBFIs, microfinance banks, and branches/subsidiaries of foreign banks.
28
What is the maximum maturity for Credit Lines/Overdrafts under FSBA?
Seven days, for liquidity or Nostro funding needs.
29
What is the borrowing cost ceiling for Credit Lines/Overdrafts under FSBA?
100 basis points over the relevant benchmark rate.
30
What is the purpose of FSBA for Liquidity Management?
For liquidity management by Authorized Dealers and foreign bank branches, with maturity from one month to one year.
31
What is the threshold for FSBA for Liquidity Management?
Up to 100% of unimpaired capital, based on latest audited financial statements.
32
What is the minimum maturity for FSBA by Micro Finance Banks?
Two years, for financing loan portfolios, with negotiable borrowing costs competitive with local rates.
33
Do Long-Term FSBA loans require approval?
Yes, for maturities over one year or purposes other than liquidity, prior State Bank approval is required on a case-by-case basis.
34
When do guarantees on behalf of residents in favor of non-residents require approval?
Always, except as allowed in paragraph 14, with applications to the Exchange Policy Department or Foreign Exchange Operations Department.
35
When do guarantees on behalf of non-residents in favor of residents require approval?
Always, except as per paragraphs 14 and 15 or back-to-back guarantees from overseas branches, with applications to SBP-BSC.
36
What are Performance/Bid Bond Guarantees?
Guarantees issued by Authorized Dealers or regulated insurance companies for exporters or consultancy/construction firms for tenders, subject to specific conditions.
37
Can Authorized Dealers issue guarantees without approval for missing documents?
Yes, in the ordinary course of business for missing documents, signature authentication, or defects under letters of credit.
38
Do guarantees to government departments require approval?
No, Authorized Dealers can issue FCY guarantees to government entities, payable in PKR if invoked, subject to regulations.
39
What are the key responsibilities of Authorized Dealers in loan registration?
Maintain a loan database, ensure KYC/AML/CFT compliance, register loans before transactions, and conduct risk assessments.
40
What documents are required for PSBA for Project Financing registration?
Original loan agreement, directors’ list, beneficial ownership, project report, and, for intercompany loans, evidence of relationship.
41
What is the deadline for obtaining a Loan Registration Number (LRN)?
By the 5th of the following month, reported to the Statistics & Data Warehouse Department.
42
What happens in case of non-compliance with reporting requirements?
Regulatory action under the Foreign Exchange Regulation Act, 1947.
43
What is a 'security' as defined in the Act?
Shares, stocks, bonds, debentures, government securities, deposit receipts, and units, excluding bills of exchange or promissory notes (except government ones).
44
What is a 'foreign security'?
A security issued outside Pakistan or payable in foreign currency or outside Pakistan.
45
Are there restrictions on importing securities into Pakistan?
No, there are no restrictions under the Act.
46
What is required to export foreign securities?
Prior State Bank permission, with an undertaking from an Authorized Dealer to return the securities or repatriate sale proceeds.
47
Can Pakistani securities be exported without permission?
No, except under general exemption, prior State Bank permission is required.
48
What does the general exemption allow for securities?
Issue, transfer, and export of securities to eligible non-residents (e.g., NRPs, foreign nationals) on repatriation basis, if payment is in foreign exchange and meets pricing rules.
49
What is the procedure for issuing shares to non-residents?
Companies open FCY accounts, repatriate subscription money, obtain Proceeds Realization Certificates, and report to the State Bank within 60 days.
50
Can securities be issued on a non-repatriation basis?
Yes, if payment is in PKR or FCY, registered at a Pakistan address, with an undertaking that no repatriation of capital or profits will be claimed.
51
What is a Special Convertible Rupee Account (SCRA)?
An account for non-residents to trade quoted shares and units, fed by remittances or FCY accounts, with funds transferable abroad without approval.
52
What is an NRP Rupee Value Account (NRVA)?
An account for non-resident Pakistanis to invest in quoted shares and units, using CDC/NCCPL for custody and settlement.
53
Can non-residents invest in government securities through SCRA?
Yes, if permitted by relevant SROs, including PIBs, Treasury Bills, and WAPDA Bonds.
54
Are there special instructions for shares under the Central Depository System (CDS)?
Yes, non-residents maintain separate accounts at CDC, with transactions supported by actual fund movements and no netting.
55
Can foreign banks invest in Pakistani securities?
Yes, branches of foreign banks can invest in PKR-denominated listed debt instruments, up to 30% of the issuer’s or their own capital.
56
What are the categories for investment abroad by residents?
Includes establishing subsidiaries, holding companies, business expansion, and individual investments (e.g., small investments, employee stock options).
57
What is required for investment abroad by mutual funds?
Prior State Bank approval, up to 30% of mobilized funds (capped at USD 15 million), per SECP guidelines.
58
Do residents need to register foreign securities?
Yes, under Section 19(I), within one month of acquisition, using Form V-100, except for foreign nationals in Pakistan.
59
Can foreign banks underwrite shares in Pakistan?
Yes, up to 30% of the public offering or their own capital, including term certificates and Modaraba certificates.

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