KARACHI, May 23: The State Bank on Thursday sold Rs3 billion long-term Pakistan Investment Bonds in the cash-strapped inter- bank market that borrowed Rs17.3 billion from the central bank through its discount window.
Bankers said two nationalized commercial banks and a partly privatized bank made a combined overnight borrowing of Rs12 billion from the central bank, and some other local and foreign banks borrowed the remaining Rs5.3 billion.
This marked the continuation of a discounting spree that started last week when the SBP siphoned off Rs38.7 billion from the inter-bank market through sale of treasury bills whereas the market actually had only Rs20 billion surplus.
Bankers said the ongoing liquidity crisis limited the banks interest in long term bonds adding that the auction generated only Rs5 billion bids against the sale target of Rs3 billion. Traditionally the auction of these bonds have attracted a much better response: In the last auction of the three-year and five- year bonds held on March 27 the State Bank had received Rs17 billion bids though it had stuck to the sale target of Rs8 billion.
On Thursday (May 23) the central bank siphoned off Rs1.3 billion through sale of three-year bonds and Rs1.7 billion through sale of five-year bonds. The State Bank sold the three- year bonds at a maximum price of Rs100.16 per Rs100 and five- year bonds at Rs100.26 per Rs100. This means the investors would get return very slightly lower than the fixed return of 9 per cent on three-year bonds and 10 per cent on five-year bonds.
Bankers said it was not only the liquidity crisis that had a dampening impact on the PIBs auction. “What else discouraged banks from taking an active part in the auction was that some local private banks that had earlier stockpiled PIBs refrained from further purchases,”
said treasurer of a large local bank.
The State Bank had asked these banks some time ago to start off-loading their stocks of PIBs on the ground that these banks had a high-risk over-exposure in the long-term bonds that were primarily meant for corporates. “Whereas these banks have failed to off-load PIBs stock...they are trying not to add up to it.”
Bankers said Thursday auction of long-term bonds could not attract many corporate buyers and main buyers of the bonds were some large local and foreign banks.
They said the settlement of the bonds auction on Friday would result in an additional outflow of Rs3 billion adding that the banks might have to revisit the SBP discount window the same day.
Bankers said whereas the market discounted by Rs17.3 billion on Thursday the central bank did not inject liquidity to help it out of the liquidity crisis. On Wednesday the SBP had injected Rs10.8 billion but despite the market had seen Rs8.3 billion discounting.
Some bankers said the central bank might take a decision to inject or not to inject liquidity in the market on Monday after watching the liquidity level on Friday—the last working day of this week.
“Watching liquidity level on Friday is necessary as some banks have resorted to discounting to keep more than required cash reserves,” said treasurer of a local private bank. “In that case there would be little discounting on Friday...and the market would square itself early next week.”
