Friday, 24 October 2014

Ijara Sukuk: Pakistan’s central bank performs first ever OMO

Lately, State Bank of Pakistan (SBP) has announced to conduct open market operation (OMO) of Ijara Sukuk and the first ever outright purchase (Bai Muajjal) of Government of Pakistan Ijara Sukuk-9 (GIS) was performed on October 23 2014.

In the first ever outright purchase of Sukuk the central bank accepted bids amounting to Rs6.175 billion. Islamic banking institutions (IBI) aggressively participated in the OMO. Overall, the central bank received 16 offers amounting to Rs45.575 billion, which included three offers for 6-month and some 13 for 12-month period.
Offers for 6-month amounted to Rs3 billion with price ranging from Rs108.3753 to Rs108.3856, while for 12-month Rs42.575 billion worth bids were submitted with price ranging from Rs113.3689 to Rs113.8220.
As per transaction modalities for OMOs for GoP Ijara Sukuk announced by the SBP, all Islamic banks and conventional banks having Islamic branches were eligible to participate in the OMO.

Out of the received bids, the SBP accepted offers amounting to Rs6.175 billion. This includes all 6-month bids at a deferred price of Rs108.3856 and some four bids for 12-month period amounting to Rs3.175 billion at a deferred price of Rs113.5572.

A week earlier, the central bank announced that it will initiate outright trade of GIS through OMOs to facilitate Islamic Banking Industry (IBI) for liquidity management as for the last few years, the banks are facing a severe challenge of liquidity management with an excess liquidity and limited investment opportunities.
Industry sources said the issuance of new GIS is on a slow track and previous Sukuks are being matured gradually. Presently, the Islamic Banking Industry has some Rs80 billion to Rs90 billion surplus liquidity in the system and in order to facilitate IBI in its liquidity management and more effective transmission of monetary policy, the SBP decided outright purchase or sale of GIS through OMOs based on multiple price competitive bidding auction process.

The offered three-year GIS-9 was launched in 2011 and is expiring on 26th December 2014. The purchase of GIS on deferred payment by SBP has provided an opportunity to the IBI to invest Rs6 billion till expiry.

Although, the IBI aggressively participated in the first OMO, these were disappointed over the accepted bids. They say as the market has surplus liquidity, the accepted amount should have been higher.

Bankers said the sold off GIS will be transferred to the SGLA of the buyer on the deal date, while payment will be made on deferred payment date and banks cannot include the GIS in their SLR calculations from the deal date.

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