SBP accepts Rs6.175bn bids in first OMO

RIZWAN BHATTI

KARACHI: The State Bank of Pakistan (SBP) on Thursday conducted the first Open Market Operation (OMO) for outright purchase (Bai Muajjal) of Government of Pakistan Ijara Sukuk-9 (GIS).

The SBP conducted the first outright purchase of GIS and accepted bids amounting to Rs 6.175 billion. Bids were invited in the morning and IBI aggressively participated in the OMO. Overall, the central bank received some 16 offers of Rs 45.575 billion, which included three offers for 6-month and some 13 for 12-month period.

Offers for 6-month amounted to Rs 3 billion with price ranging from Rs 108.3753 to Rs 108.3856, while for 12- month Rs 42.575 billion worth bids were submitted with price ranging from Rs 113.3689 to Rs 113.8220.

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 Rs 6.175 billion. This includes all 6-month bids at a deferred price of Rs 108.3856 and some four bids for 12-month period amounting to Rs 3.175 billion at a deferred price of Rs 113.5572.

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 Rs 80-90 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 Dec 26, 2014. The purchase of GIS on deferred payment by SBP has provided an opportunity to the IBI to invest Rs 6 billion for another 4-10 months.

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

According to SBP, if the deferred payment date falls on public/bank scheduled or unscheduled holidays, contracts will be extended to the next business day and there will be no change in deferred payment price.

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.