Pakistan’s Islamic banks liquidity requirement raised by 7 per cent

By: John Foster

The Central Bank of Pakistan has raised the statutory liquidity requirement for Islamic banks by 200 basis points to 7 per cent with immediate effect.

It has been decided to raise the limit on total Sukuk holdings, for statutory liquidity requirement purposes, from 5 per cent to 7 per cent of total time and demand liabilities," the State Bank of Pakistan said in a statement.

Statutory liquidity requirement is the amount of time and demand deposits that banks have to set aside in government securities, cash and gold.

Dr. Shamshad Akhtar, governor of the State Bank of Pakistan, said “The State Bank of Pakistan is starting to address its role as an Islamic finance hub seriously. Well-developed and integrated Islamic money, capital, and foreign exchange markets will not only be beneficial for borrowers and institutional investors but can also further enhance the stability of Islamic finance institutions, providing them with improved portfolio, liquidity and risk management tools.”

She raised a note of caution however, arguing that although the Islamic finance industry has the potential to grow by 20 to 30 per cent, there are concerns that it is fraught with diversity, fragmentation and heterogeneity.

To ensure that Islamic finance institutions benefit and contribute to financial globalisation, she said that there was a need for countries to launch a coherent, coordinated and synchronised development of the industry at a national level, which could feed into and reinforce the implementation of the Islamic finance strategy, approved by the council of governors of IFSB last year.