SBP cuts markup rate on refinance schemes to 5% to bolster investment

KARACHI: The State Bank of Pakistan (SBP) has announced a 5% cut in the markup rate on its refinance schemes in a bid to bolster investment in an economy dented by the coronavirus pandemic.

In a press release issued Wednesday by its External Relations Department, the central bank explained that the development came in addition to other measures it had introduced earlier, including bringing the policy rate down to 7% through multiple cuts over the past two months.

"To extend the benefits of this reduction in the policy rate to the users of its refinance schemes, SBP has now decided to align the end user markup rates on two of its refinance schemes for promoting investment in the country.

"Specifically, SBP has curtailed the end user markup rates on Temporary Economic Refinance Facility (TERF) to 5% from the existing 7% and on Long Term Financing Facility (LTFF) for non-textile sector to 5% from 6%," it added.

Back in March, the central bank had introduced two key measures to facilitate the coronavirus-hit Pakistani economy and encourage investment at the same time.

The new measures include a "Temporary Economic Refinance Facility (TERF)" and a "Refinance Facility for Combating COVID–19 (RFCC)" — both accompanied with their Shariah-compliant versions. The TERF is targeted at stimulating new investment in manufacturing, whereas the RFCC aims at providing support to hospitals and medical facilities in fighting the coronavirus pandemic.

In the latest statement, it explained the TERF and the LTFF further.

TERF

"SBP introduced this facility to provide stimulus to the economy by supporting new investment and balancing, modernisation and restructuring (BMR) of the existing projects. To further improve the incentive under the scheme, SBP has lowered the end user mark-up rates from existing 7% to 5%. SBP will now be providing refinance to banks at 1% with banks' maximum margin of 4%.

"Further, SBP has also allowed the TERF facility in cases where LCs/Inland LCs were opened prior, but retiring after the introduction of the scheme on March 17, 220. These measures, in the backdrop of earlier policy action of allowing BMR under TERF, are expected to further support the economic activity, new long term investment and employment generation.

"Under this scheme, up till 2nd July 2020, Rs10.5 billion have been approved by banks for 21 projects," the statement said.

LTFF

"LTFF is one of the oldest refinance schemes of SBP under which financing is available for export-oriented projects for purchase of imported and locally manufactured new plant and machinery. In March, 2020, SBP opened the LTFF to all sectors across the board.

"Earlier the end user markup rate under this scheme were 5% for textile sector and 6% for non-textile sectors. State Bank has now reduced its refinance rate for non-textile sector by 1% and therefore the end user rate for all sectors across the board will be 5%.

"It is expected that the above measures will help facilitate long term investment in both domestic and export market," the SBP said.