KARACHI, Sept 10: The State Bank of Pakistan would hold first auction of Government Ijara Sukuk on Monday (Sept 15), providing an option to Islamic banks to use these Sukuk as an alternative to treasury bills.
Islamic banks have been demanding an alternative to treasury bills to improve their minimum capital requirement, and the central bank recently issued detailed guidelines for auction of Ijara Sukuk.
All commercial banks, including Islamic banks (and non-banks subjected to SLR and entitled to open current account with SBP) will be eligible to open Subsidiary General Ledger Accounts (SGLA) with the SBP for the Ijara Sukuk.
Ijara Sukuk will be scripless and held in the SGLA accounts of commercial banks.
Sukuk can be traded in the secondary markets and are transferable through SGLA. Primary dealers are free to sell Ijara Sukuk to eligible investors.
Commercial banks having Islamic branches will have to maintain separate SGLA’s to clearly distinguish between the holdings of the Islamic branch and its conventional counterpart.
All Islamic banks and commercial banks with Islamic branches will be designated as primary dealers for participating in the auction of GOP Ijara Sukuk. Islamic branches will not be allowed to separately place bids in the auction. The Sukuk will be issued at face value.
According to tender of the first auction issued here on Wednesday, the SBP will sell Government Ijara Sukuk worth Rs10 billion and the result of the successful bidders would be announced on 15th of this month.
The maturity period of the first Sukuk issue would be for three years from the date of issue. The profit on the Sukuk would be paid semi-annually on the basis of rental rate announced by the State Bank prior to start of each half year.
The semi-annual profit would be benchmarked against the latest weighted average yield of the six month Market Treasury Bills.
In order to ensure that there is no over-concentration, holding of any commercial bank, including Islamic banks, cannot exceed 25pc of the issue amount as of close of any business day.
In case of commercial banks with Islamic branches, this holding restriction would be applied on a combined and amalgamated basis.
Although the Ijrara Sukuk will support Islamic banks which have been looking for an alternative of treasury bills, bankers said the response of Sukuk would not be enthusiastic.
They said banks would not prefer investment for three years in Ijara Sukuk, though it would be tradable. The product needs time to get a place in the market.
Islamic banks have got attractive results of their products in recent years in Pakistan which forced most of the commercial banks to open Islamic branches or windows to attract deposits.
However, the size of the Islamic banking is still much smaller than the traditional banks.
The State Bank as part of its ten year strategy last week increased the MCR to Rs23 billion or $300 million for all banks, including the Islamic Banks.
