KARACHI, June 18: The corporate debt market, with an addition of Rs11.6 billion during the current fiscal year, has reached Rs50 billion mark, but is mostly dominated by commercial banks.

Bankers said Rs50 billion corporate debt market, created through the issuance of term finance certificates (TFCs), was much below the size of the corporate sector and far below than the Indian debt market.

Ten new TFCs worth Rs10.65 billion were issued during the current financial year, while last year, nine TFCs worth Rs10.4bn were issued. The total outstanding market of TFCs in Pakistan has reached Rs50 billion.

“The rate of return on these TFCs was 1.50 per cent to 2.75 per cent over six- month KIBOR while three TFCs were issued by the commercial banks,” said Mohammad Imran, an analyst at the First Capital Equities.

The State Bank has been emphasising on the depth of the secondary debt market which could play a vital role in the growth of the financial sector. Though the financial sector’s growth boosted during the last four years, the debt market was still not reflecting the growth of the financial sector, as well as the rate of economic growth of the country.

As per data of June 9, listed TFC market is only 2.2 per cent of total commercial bank advances. Advances grew sharply during the last five years. Scheduled banks’ total advances, which were just Rs970 billion in June 2002, reached Rs2,127 billion in June 2006, and further moved to touch the figure of Rs2,358 billion till February 2007.

A similar picture emerges when the volume of TFCs is compared with the boost in the Karachi Stock Exchange. The comparison shows that the TFC volume is only 1.3pc of the total market capitalisation of the KSE.

Credit growth in the private sector also took a sharp jump during the last four years.

“A lot of potential exists to deepen the debt market and more TFCs are expected to come in the next financial year,” said Imran.

Three new companies -- Faysal Bank limited, First National Equities and Shah Murad Sugar Mills -- plan to float their TFCs in FY 2008.

During FY05, seven TFCs were issued by the commercial banks, out of 14. Similarly, in FY06, out of nine, three TFCs were issued by banks. This trend continued in FY07, as of the 10 TFCs, banks issued three, and analysts believe that in the financial year 2008 also, banks will continue to issue TFCs.

“As these TFCs count in tier 2 capital of the bank for the purpose of capital adequacy and the banks which are facing problem in maintaining capital adequacy, above eight per cent (prudential requirement) are likely to issue TFCs,” said Imran.The Allied Bank was the highest issuer of TFCs which sold TFCs worth Rs2.5 billion in December 2006. United Bank issued TFCs worth Rs2 billion, Bank Al-Habib issued TFCs worth Rs1.5bn, Jehangir Siddiqui and Co worth Rs1.1 billion, while the Orix Leasing issued TFCs worth Rs2.5 billion while the listing is expected before the end of the current fiscal.