KARACHI: The State Bank of Pakistan sold Rs 6 billion worth of Ijara Sukuk (Islamic bonds) in an auction held here on Saturday.

The SBP set the yield 75 basis points above the yield on six-month treasury bill. The yield set on six-month treasury bill in the last auction was 14.0108 percent. The range of margin demanded by primary dealers above the benchmark was 15 basis points to 95 basis points.

The SBP received bids worth Rs 7.35 billion for three-year Ijara Sukuk against the pre-auction target of Rs 10 billion. This was the second auction of sukuk by the government. In the first auction held on September 15, the government had raised Rs 6.522 billion.

Islamic banks, as well as commercial banks having Islamic banking windows, are eligible to participate in sukuk auctions.

Issuance of sukuk has made liquidity management easier for Islamic banks. Earlier, they had to place cash with the central bank to meet their SLR because of shortage of securities. Moreover, they did not get any profit on that cash. Now they are able to invest their excess liquidity in these papers and earn profits.

Islamic banks have to place 9 percent of their deposits with the central bank as SLR. This requirement is 19 percent for the conventional banks. A banker said that the central bank might raise the SLR for Islamic banks after sometime when auctions of government sukuk become a regular thing.

The shortage of securities was so acute that a few months ago a leading Islamic bank failed to buy KSEW sukuk from the market because those holding the paper did not want to sell. staff report