After seeing a rare but tangible slump of 70pc or Rs49b last week, the commercial banks’ Excess Cash Reserves (ECRs) once again are moving northward. SBP reported that during the week, ranging from January 20 to 26, the banks’ excess liquidity ballooned by 37pc to Rs28.885b against Rs21.140b the banks held in the preceding week. The central bank warns that the excess cash holdings by the commercial and Islamic banks, which are pocketing handsome amounts through investing massively in the risk-free and heavily-weighted government securities including MTBs, Pakistan Investment Bonds and Ijara Sukuk, adversely impacts smooth functioning of the country’s existing interest rate corridor.
A breakup, reported by the central bank, shows that during the week under review the conventional and Shariah-compliant banks cumulatively possessed excess cash worth 23.45b and Rs5.435b, respectively. SBP calculated the conventional banks’ daily average excess cash collection at Rs 3.35b while that of their competitors in Islamic banks stood at Rs 776m. A daily review shows that the banks raised additional liquidity worth Rs 4.71b on Jan 20, 21 and 22, Rs 5.027b on Jan 23, Rs 7.749b on Jan 24, Rs 12.817b on Jan 25 and negative Rs 10.863b on Jan 26. These amounts also include the pre-mature encashment the banks reported to the State Bank in line with its july 2006’s BSD circular No 09.
