Banks get time to claim sub­sidy on youth loans

The Pak Banker - - FRONT PAGE - Staff Reporter

The State Bank of Pak­istan (SBP) is ex­pand­ing is­suance of ru­pee-based Is­lamic bonds (sukuk), auc­tion­ing Rs 100 bil­lion ($955 mil­lion) worth of three-year pa­per this week, a much-needed tool for the fast-grow­ing Is­lamic bank­ing sec­tor. The cen­tral bank plans to of­fer an­other Rs100bn worth of sukuk in April, ac­cord­ing to its auc­tion cal­en­dar. If suc­cess­ful, the two auc­tions would ex­ceed the to­tal amount of sukuk the cen­tral bank has sold in the pre­vi­ous three year pe­riod.

Pak­istan's Is­lamic banks have ex­panded rapidly along with growth of Shariah-com­pli­ant bank­ing across the Middle East and South­east Asia, but the sec­tor still lacks some of the money mar­ket in­stru­ments avail­able to con­ven­tional lenders.

Is­lamic banks fol­lows religious prin­ci­ples such as bans on in­ter­est and pure mon­e­tary spec­u­la­tion, which rules out their use of short-term fi­nan­cial in­stru­ments such as trea­sury bills and re­pur­chase agree­ments.

In the 12-month pe­riod end­ing in Septem­ber, Pak­istan's 22 Is­lamic fi­nance in­sti­tu­tions have added Rs409bn in as­sets, a 36.2 per cent growth rate, cen­tral bank data shows. The sec­tor now holds an 11.2pc share of to­tal bank­ing as­sets, up from 9.9pc a year ear­lier.

Prof­itabil­ity, how­ever, re­mains below the bank­ing in­dus­try av­er­age, partly due to higher ex­penses as Is­lamic banks ex­pand their branch net­works and a lack of com­pli­ant in­vest­ment op­tions. This week's auc­tion will also be the first time the cen­tral bank is­sues sukuk with a fixed rental rate, which will be paid on a semi-an­nual ba­sis, com­pared to the vari­able rental rate it has used since it be­gan sukuk auc­tions in 2008.

The cen­tral bank is­sues sukuk based on a struc­ture known as ijara, a Shariah-com­pli­ant sale and lease-back con­tract.

This week's auc­tion uses Karachi's in­ter­na­tional air­port as the un­der­ly­ing as­set for the trans­ac­tion, with the max­i­mum value of the pro­gramme be­ing Rs197.4bn, cen­tral bank said in its ten­der no­tice.

Mean­while, The dead­line for sub­mis­sion of sub­sidy claims by banks, work­ing as Prime Min­is­ter's Youth Busi­ness Loan Ex­e­cut­ing Agen­cies (EAs), has been en­hanced by five work­ing days, said a cir­cu­lar by the State Bank to­day.

Ac­cord­ingly, De­vel­op­ment Fi­nance Sup­port De­part ment, SBP BSC will process EAs claims for pay­ment within 15 work­ing days in­stead of 10 fixed ear­lier. "Ex­e­cut­ing Agen­cies shall ob­serve stan­dard busi­ness rules for cal­cu­la­tion of mark-up sub­sidy un­der PMYBL scheme," said the cir­cu­lar.

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