KARACHI, Sept 24: The State Bank has made a key relaxation in the rules it earlier put in place for revaluation of government securities and bonds.

The central bank said in a circular on Friday that the "held to maturity" securities shall be carried at amortized cost and shall not be required to be re-valued.

"This will, however, be subject to the condition that once a security is classified as "held to maturity" no subsequent reclassification/shifting to "available for sale" or "held for trading" categories will be permissible."

The circular says it has been done on the request of the Pakistan Banks Association. Banks/DFIs shall complete the process of classification of their existing investment portfolio into "held for trading", "available for sale" and "held to maturity" categories by September 30, 2004.

Senior bankers say the relaxation given by the State Bank means that the banks holding government securities whose market value have fallen sharply over time will not have to revalue the same if they are going to hold them till maturity. This, in turn, will save them from taking a hit on their books of account in case they are holding such securities.

But as the circular makes it clear, once the banks or DFIs declare such securities as held to maturity then they cannot reclassify their status. That is they will have to hold them till maturity.

"This is a major concession," said a senior executive of a local bank, adding that had the SBP not made this relaxation, the banks or DFIs with enough stock of such securities or bonds whose market value is much lower than the purchased value would have landed in trouble.