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Govt launching Ijara Sukuk this week: Akhtar

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Points of Essence:

  • Pakistan Government has launched Ijara Sukuk to enhance its money market sector. This will help Islamic banks to be in parallel with their conventional counterparts in terms of the instruments availability for their liquidity management purpose.

Pakistan is working to launch the first Ijara Sukuk in the first week of Ramadan.

KARACHI: Dr Shamshad Akhtar, Governor State Bank of Pakistan, has said the government and the State Bank were working to launch the first government of Pakistan Ijara Sukuk in the first week of the Holy Month of Ramadan in order to support the efforts to diversify the borrowings mix.

“This will not only help deploy the liquidity available with Islamic banks but also help the government to diversify its debt,” she said in a press statement issued on Thursday.

She added that given the growth in the Islamic banking industry, Shariah-compliant government securities were imperative to bring the Islamic banks parallel to their conventional counterparts in terms of instruments available for liquidity management.

She said the federal government and the central bank are working in tandem to restore macroeconomic stability.

She said that the government and the central bank were taking several measures to improve the macroeconomic situation which had been adversely affected as a consequence of various global events such as seizing up of financial markets in US and Europe or escalating commodity and fuel prices in the international markets.

“The timing of these global developments could not have been worse. Not only was our economy’s business cycle maturing after a strong and resilient performance but the socio-political set-up was also undergoing a transitional phase,” she said and added that a combination of those elements would put the resolve of any government to test and Pakistan is no exception.

Dr Akhtar said that there had been a 350 basis point cumulative increase in interest rates since July 2007, which has been accompanied by appropriate market-led exchange rate adjustment in the wake of the balance of payments challenges.

The government has further assured of its resolve to curtail fiscal deficit – a critical element of the macroeconomic stabilisation programme – and to strive to ensure net zero central bank borrowings for each quarter. With a view to achieve these objectives, fiscal tightening is being pursued through a combination of measures ranging from recurrent expenditure controls, removal of subsidies and rationalisation and prioritisation of development expenditures, she said and added that the early indications were that revenue growth was above expectations for the current fiscal year.

Referring to financing plan for meeting the budget and external sector requirements of the federal government, Dr Akhtar said that the government planned to selectively privatize some assets and had been in dialogue with international financial institutions to meet the financing gap.

“Advanced is the discussion with Asian Development Bank which has negotiated a $500 million programme for accelerated economic transformation that focuses on supporting financial sector reforms among others,” she said and added that in parallel, the World Bank had reassured its support for fast tracking investment programming of about $1 billion focused on high priority development projects.

Dr Akhtar observed that continued resolve to deal with the short-and-medium-term power sector constraints and the dialogue with overseas investors is likely to bear fruitful results in attracting more foreign investment in the sector. Further deepening of macroeconomic stabilization programme and more sector-based structural reforms should alleviate the constraints facing growth, while restoring investor confidence, she added.

Dr Akhtar said that eventual uniformity of regulatory reserves of Islamic banks with that of conventional bank was also essential for ensuring stability of financial/banking system.

The State Bank has urged Islamic banks to aggressively mobilize new deposits and play their role in bringing the currency in circulation into the banking system.

Banking system is also being incentivized through introduction of minimum deposit rate (to better remunerate savers) and easing of reserve ratios to allow more aggressive long-term resource mobilization to be able to meet the growing and diverse requirements of the economy.

She pointed out that statistics for January-March 2008 showed that the banking system was on track in terms of solvency, asset quality, earnings, and service to society.

She said that the system registered growth, though at a slackened pace as compared with past trends for the first quarter.

The asset base of the banking system since last quarter of 2006 has grown by 22 percent to Rs 5.2 trillion that is well supported by 36 percent growth in the equity and 21 percent growth in deposits.

The risk-based capital adequacy ratio stands at 13.1 percent, well-above the minimum required level of 8 percent. “It is this buffer that continues to provide resiliency to the banking system,” she added.

She said that although non-performing loans (NPLs) increased by Rs 18 billion during the first quarter, the higher level of provisioning had ensured that the impact of infections remain in check as evidenced from the net-NPL-to-net-loans ratio which was 1.3 percent in March 2008 as compared to 1.6 percent in December 2006, signifying that the banks set aside more reserves out of their earnings to cover the increase in loans that had become non-performing.

Accordingly, the NPL coverage ratio and capital impairment ratio have improved; NPL converge ratio stood at 84.1 percent in March 2008 as compared to 78 percent in December 2006, while capital impairment improved from 9.7 percent in December 2006 to 6.8 percent in March 2008.

“This improvement was also backed by regulatory drive of SBP whereby the provisioning requirements were further strengthened in line with best international practices,” she said and added that because of this change in regulatory requirement, banks had to provide additional provisioning expenses in 2007.

The banks’ strong earning capacity enabled them to absorb this additional charge and post a pre-tax profit of Rs 28.1 billion in March 2008 quarter – which was slightly less than the Rs 33.1 billion profit of corresponding quarter of March 2007, she added. staff report


Written by Suapi Shaffaii

September 8, 2008 at 10:05 am

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