A consortium of leading banks has offered to provide a credit limit of Rs 150 billion to the state-run grain trader against sectioned Rs 143 billion. Sources told Business Recorder Thursday that a stiff competition in the banking sector has forced the consortium (the chief lender) to offer a better interest rate and enhanced credit limit to the Trading Corporation of Pakistan (TCP) for commodity operation.
Ministry of finance has sanctioned a credit limit of Rs 143 billion to the TCP for smooth commodity operation and despite healthy trading activities, it has sufficient funds under this credit limit for further business. Presently, following the directives of the federal government, the TCP is engaged in the import of urea from international market and procuring sugar from domestic mills. These two operations required billions of rupees financing.
So far, the TCP has consumed Rs 121 billion from total credit limit and can avail another Rs 22 billion for its operations. However, a consortium of six banks, which mainly provides financing to the TCP, has offered to give a credit line of Rs 150 billion against the government””s guarantee for Rs 143 billion, sources said.
“This is because of stiff competition among banks working with the corporation and timely repayment of loans,” they added. Following the best financial management practices, the TCP has engaged some more small banks for commodity financing aimed at creating competition and get lending on soft conditions, source said and added that cheap and regular financing from small banks has forced the consortium to enhance the TCP credit limit, besides reducing interest rate.
After detailed negotiations between the TCP and the consortium, interest rate has been set at KIBOR plus 1.10 percent for this quarter (Jan-March 2014) against KIBOR plus 1.75 percent for last quarter (October-December 2013). A reduction of about 65 basis points will result in billions of rupee saving to the state-run grain trader, they said.
It is being expected that the remaining small banks, working with TCP, will also revise their interest rate to get new business. In order to reduce the financing cost and find out new financing resources, a few months back, the TCP with the permission of the ministry of finance started business with small banks and presently some 13 banks are on board with the corporation.
Six banks – MCB Bank, National Bank of Pakistan, Standard Chartered, Habib Bank Limited, United Bank Limited and Allied Bank Limited are being worked as a consortium, which is major lender of TCP. While, some other banks, including Soneri Bank Limited, Meezan Bank Limited, Dubai Islamic Bank, NIB Bank, Burj Bank, Askari Bank and JS Bank Limited are some other banks, which are now also on board with the state-run grain trader for financing of commodities.
The injections of small banks played a vital role in reducing the financing cost and enable the TCP to negotiate on the interest rate with other banks. Two years ago, the TCP was getting a costly financing for the commodity operation as the banks were lending at KIBOR plus 2.75 percent compared to KIBOR plus 1.10 percent for this quarter. In addition, with the efforts of the TCP officials, bank””s commission on Letter of Credits (LCs) has also been reduced from 0.23 percent to 0.04 percent. The TCP has saved a huge amount of approximately Rs 70 million on account of commission on recently established five LCs for the import of 0.5 million tons of urea.