KARACHI, Sept 15: The State Bank of Pakistan sold Rs6.522 billion worth of Ijara Sukuk (Islamic bonds) in its first auction held here on Monday with primary objective to promote Islamic banking.

The central bank has already issued detailed guidelines for trading and purpose of these Islamic bonds, which are mainly floated to benefit Islamic banks as they can keep these bonds to meet minimum capital requirement (MCR).

The SBP received bids worth of Rs9.522 billion for three-year Ijara Sukuk against the pre-auction target of Rs10 billion.

All commercial banks, including Islamic banks, are eligible to open Subsidiary General Ledger Accounts (SGLA) with the SBP for the Ijara Sukuk.

All Islamic banks and commercial banks with Islamic branches have been designated as primary dealers for participating in the auction.

Bankers and analysts offered mixed view over the response to the auction of Ijara Sukuk. Some bankers believe that the response was encouraging while others said it lacked enthusiasm.

The 3-year Ijara Sukuk carries semi-annual payment at the rate 45 basis points higher than the benchmark six months treasury bills.

In the wake of higher interest rate scenario, the banks find it more comfortable to remain either liquid rather investing in longer period like three years bonds.

The bankers said these Islamic bonds could be traded in the secondary markets and were transferable, though they are not like cash.

Primary dealers have been allowed to sell Ijara Sukuk to eligible investors.Bankers said the first auction of Ijara Sukuk was an important event as the State Bank of Pakistan had been making efforts to develop the Islamic banking industry parallel to conventional banking.

“However, the response to future auctions of Ijara Sukuk will only decide the fate of this new Islamic paper,” said a senior banker.

He said these bonds would help Islamic banks to meet their MCR, which has recently been revised up by the State Bank.

The SBP increased the MCR to Rs23 billion till 2013 from Rs6 billion till 2009. Islamic banks will have to maintain the same MCR but being small in size as compared to large conventional banks, they would face tough time to meet the target of MCR.

The SBP said primary dealers would be required to place bids as margin over or under the benchmark six month Treasury bills weighted average yield.