KARACHI: The State Bank of Pakistan (SBP) has increased the Statutory Liquidity Requirement (SLR) for Islamic banks to 14 percent of the total demand liabilities, including time deposits with a tenor of less than one-year.
In a circular issued on Wednesday, the central bank said that the new requirement will be effective from April and would exclude Cash Reserve Requirement (CRR). The existing SLR, after a reduction in October, 2008 stands at nine percent.
“This was our own suggestion to raise the bar as it would bring the Islamic banks at par with conventional peers,” said Irfan Siddiqui, President of Meezan Bank Ltd.
“After the recent issuance of Ijara Sukuks (Shariah compliant bonds), we have been asking the central bank to increase the limit. Therefore, (Islamic) banks won’t face any issue in meeting the new requirement.”
SLR is the amount of liquid assets, such as cash, precious metals or other short-term securities, that a financial institution must maintain in its reserves.
The State Bank said that the time liabilities, including time deposits with a tenor of one-year and above, will not require any SLR. “SLR can be maintained in the form of cash in hand, balance with the National Bank of Pakistan (NBP) in the current account, balance with the SBP in the current account and Un-encumbered Approved Securities as notified by the central bank from time to time,” it said.
The central bank defined that for SLR purpose all holdings of government of Pakistan Ijara Sukuk (GIS) would be fully counted.
“Holding of SBP approved SLR eligible public sector Sukuks will be counted up to seven percent of the total time and demand liabilities,” it said.
“However, single issuer holding limit of five percent of the total time and demand liabilities stand abolished,” it said.
The condition would also be effective from April 1, the SBP said.
Earlier on June 9, 2008, the central bank had decided to raise the limit on the total Sukuk holding for SLR purposes from five percent to seven percent of the total time and demand liabilities. However, individual holding in Sukuk of one issuer was restricted to five percent of the total time and demand liabilities.