January 22, 2002	Tuesday	Ziqa’ad 7, 1422

KARACHI, Jan 21: Bankers on Monday wrote some history again by expanding the scope of KIBOR or Karachi inter-bank offered rates to one-week and two-week tenures and increased its validity from five to 15 minutes.

Senior bankers said one-week and two-week KIBOR was worked out at 3.04 and 4.15 per cent but they would not say whether any deals were struck in the new tenures. One-month, three-month and six-month KIBOR stood at 5.53 per cent, 6.70 per cent and 7.30 per cent respectively.

“We added one-week and two-week tenures to KIBOR to strengthen its role,” said Dr. Naim Abdullah who runs the treasury of ABN Amro Bank and heads Financial Market Association grouping bankers and inter-bank brokers.

It was on September 7 last that the word KIBOR first flashed across Reuters screen the world over putting Pakistan on the list of progressive financial markets.

“Since then we have come a long way,” said treasurer of a big European bank. “The volume of business under KIBOR has grown from less than a hundred million rupees to well over half a billion rupees daily.”

“Some banks particularly those of foreign origin has already started using KIBOR as a benchmark to price loans for customers.”

So the KIBOR is something good. But what it is? KIBOR is the average interest rate at which banks want to lend money to other banks that are members of the KIBOR club — 20 in number. And KIBID or Karachi inter-bank bid rate is the average interest rate at which these banks are willing to borrow money from each other.

From September 7, 2001 banks had started quoting offer and bid rates under KIBOR regime through Reuters page on their computer network for one month; three months and six months. “Since then the rates quoted in these tenures has helped us gauge the real liquidity level in the market,” said the State Bank’s Foreign Exchange Advisor Zafar M. Shaikh.

But managing liquidity in shorter tenures was still difficult both for banks as well as for SBP in the absence of less than a month’s KIBOR.

Banks realized this and agreed to quote interest rates also for one-week and two week-tenures.

Shaikh said the State Bank that supervises the KIBOR regime has allowed banks to quote bid and offer one-week interest rate with a maximum spread of one per cent.

Dr Naim Abdullah explains why? “In one-week tenure there is much more fluctuation in liquidity than in longer tenures. That is why banks need a bigger spread.”

He said that banks will continue to keep the spread between their offers and bids at 50 basis points in two-week tenure. Fifty bps was set as the maximum spread when banks l