The central bank, on Friday, increased the maximum holding limit of Islamic bonds for banks by 10 percent to, what analysts believe, attract investors from the Muslim world and raise more budgetary debts for the cash-strapped government.
The State Bank of Pakistan (SBP) increased the maximum holding limit of the Government of Pakistan Ijara Sukuk for Islamic and those conventional banks that have Islamic banking branches to 35 percent of the issued amount. Earlier, this maximum holding limit for all banks was 25 percent, said SBP’s DMMD Circular No 2, issued by the regulator on Friday.
According to a circular, the move is aimed at ensuring that there is no over concentration of the government risk-free guarantees, held by investors primarily from the Islamic banks in the face of Ijara Sukuk.
It said the holding limit of Ijara Sukuk for the Islamic and conventional banks dealing in Sharia banking would be 35 percent of the issued amount. “The holding restriction would be applied on a combined/amalgamated basis for commercial banks with Islamic banking branches,” said the circular.
While for the conventional banks, with no Islamic banking branches, the holding limit would remain unchanged at 25 percent of the issue amount.
“Adherence to the above holding limit by issue has to be complied as of close of any business day,” it maintained. The above amended holding limit would be applicable to all issues of Islamic bonds, the circular concluded. According to economic observers, the move was primarily aimed at increasing the lending capacity of banks in view of the government’s increasing demand for budgetary support.
“They (SBP) did this because they have to sell Sukuk to banks in order to raise more debts for the government and to increase lending capacity of the banks,” said Asfar Bin Shahid.
The State Bank’s quarterly auction calendar reveals that the federal government had set a budgetary borrowing target of Rs 1.19 trillion to be borrowed from the banking system during fourth and last quarter of the current fiscal year.
Of the total Rs 1.19 trillion, the federal government would raise Rs 45 billion by selling the three-year Ijara Sukuk to Islamic banks, which constitute around six percent of the country’s overall banking sector. The maximum value of assets, under the present issuance programme of the Islamic bonds, has been set by the SBP at Rs 54.95 billion.
Analysts also view that the government, by extending the Sukuk’s holding limit, might have an intention to lure investment from the 57-country Muslim world. “European investors have no or little interest in Pakistani bonds and even if they do, it must be on cheaper prices,” AB Shahid said. The economist said that Pakistan’s move might lure investors from the Muslim countries who were conscious about the interest factor, “supposedly” absent in the Islamic bonds.
