Islamic bonds: State Bank enhances holding limit

Islamic banks can now purchase 35% of the bond issue.

KARACHI:

The State Bank of Pakistan (SBP) has increased maximum holding limit of Ijara Sukuk (Islamic bonds) for Islamic banks and conventional banks having Islamic banking branches to 35 per cent of the issue.

Earlier, the maximum holding limit for all banks was 25 per cent, the State Bank announced on Friday.

Citing the reason, the central bank said it took the decision in order to avoid over-concentration, adding the holding limit would be applicable to all issues of the Ijara Sukuk.

The holding restriction would be applied on a combined or amalgamated basis for commercial banks with Islamic banking branches, it said.

However for conventional banks, with no Islamic banking branches, the holding limit of the bond will be 25 per cent of the issue.

InvestCap Head of Research Khurram Schehzad said the move would provide Islamic and other banks having Islamic banking branches a lucrative avenue to park their surplus money over the long term.

The expected flow of increased funds to government papers will also provide some relief to the cash-strapped government. “This way, the government will receive funds for the long run to help meet its expenditures,” Schehzad said.



Published in The Express Tribune, April 23^rd, 2011.