KARACHI: Islamic banks, already sitting on a surplus liquidity in absence of fresh issuance of Sukuks, are feeling uneasy with a major portion of their assets soon to be matured to further pile up their funds, officials said on Friday.  

The officials said around statutory liquidity ratio (SLR)-eligible Bai Muajjal instruments worth Rs225 billion are scheduled to be matured on November 17.

The State Bank of Pakistan (SBP) helps Islamic banks to maintain SLR ratio through purchase and sale of government of Pakistan’s Ijara Sukuk (GIS) either on deferred payment basis (Bai-Muajjal) or on ready payment basis through open market operations based on competitive bidding.

“Islamic banks would not be able to meet the SLR requirement of 19 percent fixed by the central bank and that scares everyone,” a senior banker told The News, on condition of anonymity.

“Several institutions may face SLR shortfalls and consequently may be forced to keep large amounts of cash at zero percent with the State Bank,” the banker said.  Industry officials said currently outstanding Ijara Sukuks stands at Rs363 billion.

“Assuming 80 percent to be held by IBIs (Islamic banking institutions), this means they hold Rs290 billion of Ijarah Sukuks. Thus, total sovereign SLR eligible assets are Rs498 billion,” said an official source.

Banks are wary over the uncertainty of how would the ministry of finance and the central bank would rescue the banks.   “There is a serious delay at the end of ministry of finance on the issuance of Sukuk, which would hamper the growth of Islamic banking in Pakistan and government would likely to miss the target of taking Islamic banking share up to 20 percent by 2020,” said a head of Islamic bank.

The banker said the government might issue a new Sukuk against the asset of M-1 Peshawar to Islamabad Motorway.     “After the maturity of GIS 14 on March 28, the M1 asset is available for reissuance of new government Sukuk,” he said.

The Islamic banks can invest their funds into the federal government securities to meet the SLR requirement as per the central bank’s rules. The central bank penalises Islamic banks for investing funds into non-SLR instruments.

Bankers said instead of borrowing from the international capital market, the government could raise money from Islamic banks through issuing domestic Shariah-compliant debt.   They, however, said there are some challenges associated with the flotation of Islamic bonds. Dearth of assets is one of the biggest challenges for the growth of Shariah-compliant lending products.

“Banks are mobilising deposits but issue is that where it could be deployed,” said an industry observer. “It calls for real assets to underline all transactions. Presently, the real assets to underline all transactions are difficult to find out. “

The bankers said the Islamic finance needs impetus from the government in assets development. “The government can support Islamic banking and financial industry by issuing Sukuks against its own assets,” said one banker.

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