KARACHI, Dec 30: The State Bank of Pakistan has allowed banks to reclassify their investments in equities, Term Finance Certificates (TFCs) and sukuk categorised as held-for-trading (HFT) to available for sale for held-to-maturity (HTM) as per the guidelines issued earlier.In a circular issued here on Tuesday, the central bank said this step was taken due to prevalent market conditions as exceptional circumstances.

As per the earlier circular, investment securities once classified into HTM category cannot be reclassified.

“Keeping in view the prevalent market situation, banks and DFIs may reclassify the securities after getting prior approval from the SBP,” said the circular.

On October 13, the SBP had issued a circular announcing that it had been decided to allow use of HTM securities for borrowing under SBP repo facility (OMO) and discount window with immediate effect.

This facility was against Market Treasury Bills (MTBs) and PIBs to the extent such investments were in excess of limit prescribed for Statutory Liquidity Requirement (SLR).

The decision was taken to ease the tight liquidity situation for banks.

The SBP said that restriction on entering into repo transaction against HTM securities in inter-bank market would continue.

An earlier circular said this new arrangement was being made temporarily to provide liquidity comfort to banks and the same would be reviewed in due course of time.

In the first week of October, the State Bank had slashed the Cash Reserve Requirement (CRR) to 7 per cent from 9 per cent in two steps to generate extra liquidity up to Rs61 billion.

In the mid of September PIBs and TFCs were eligible towards SLR to the extent of five per cent of TDL.

The SBP increased this limit to 10 per cent with effect from October 18, 2008, and this additional increase of five per cent can only be met through investments in PIBs.

This increase was applicable on the investments in PIBs held in the bank’s own account only.