The central bank’s concern for ensuring a smooth functioning of the country’s interest rate corridor seems far from being allied, as the banks, both conventional and Islamic, still maintain the Excess Cash Reserves (ECR) of over Rs 33 billion.
The State Bank warns that by sitting on huge excess liquidity reserves the banks were adversely affecting the interest rate corridor in the banking system. “Excess cash reserve… also has implications for the banks’ own liquidity management,” the regulator warned in a previous statement.
The regulator’s calls, however, seem to have fallen on deaf years in the banking circles where the central bank’s data show the banks holding excess liquidity to the tune of Rs 33.214 billion during the week ending on March 8. A breakup for the week under review depicts that the conventional banks’ cumulative cash holdings amounted to Rs 21.820 billion while that of the Shariah-compliant Islamic banks aggregated to Rs 11.395 billion.
During March 02 and 08, the State Bank counted the conventional and Islamic banks’ daily average excess cash collection at Rs 4.745 billion, the former holding Rs 3.117 billion and the latter Rs 1.628.
On day-to-day basis, the banks possessed additional cash worth Rs 565 million on the 2nd, 3rd and 4th of this month, negative Rs 15.508 billion on March 05, negative Rs 9.686 billion on March 06, Rs 283 million on March 07 and Rs 56.430 billion on March 08.
However, whereas the fast-growing Islamic banks’ were able to keep their reserves in the green zone, their counterparts in conventional banks could saw negative figures on their balance sheets for the entire week, March 08 being the only exception.
The above amount is inclusive of the pre-mature encashment the banks reported to the central bank as per the regulator’s July 2006’s notification. Sensing its negative impact on the interest rate corridor and, therefore, discourage the banks to hold ECRs, the State Bank has started making public on weekly basis the banks’ liquidity that they possess in addition to their Cash Reserve Requirement (CRR). “To bring more efficiency in the money market operations of banks, the State Bank of Pakistan has decided to publish the weekly data of Excess Cash Reserves maintained by commercial banks over and above the minimum required CRR,” the SBP said in a circular concerned. The ECRs is an amount that the banks posses over and above the minimum required CRR. The risk-averse banks are making handsome profits through massively investing in the heavily-weighted government papers that include Market Treasury Bills, Pakistan Investment Bonds and Islamic bonds (Ijara Sukuk).
Banks’ Rs33bn excess cash reserves keep haunting interest rate corridor
