KARACHI, Oct 30: The Pakistan Investment Bonds (PIBs) were auctioned after a long time but the sale did not attract too many investors. The SBP raised the cut-off yields on the PIBs but investors did not seem to be interested in investing for periods running into 10, 15 or 20 years.
Sources in the banking industry said that only insurance companies showed some interest to put some money for the long-term bonds.
The SBP did not deviate from its previously set target of Rs15 billion for 3-, 5-, 10-, 15-, and 20-year bonds despite the lukewarm response of investors and managed to raise Rs8.03 billion for 3-, 5- and 10-year PIBs. The central bank had set the cut-off price for these bonds at 98.34, 97.64 and 95.1 per cent, respectively.
The weighted average yields of 3-, 5- and 10-year bonds were 9.69, 9.88 and 10.3 per cent, respectively. The auction was earlier to be held in May but was postponed.
The last auction for 15-year and 20-year bonds was last held in June 2004. The cut-off yield for 15- and 20-year bonds were 10.85 per cent and 11.17 per cent, respectively.
Experts said that the auction was a formality and it would not help the government borrow money from the sale of PIBs. On the advice of the State Bank, the government is looking for alternative sources, other than banks, to borrow for budgetary and other financial requirements.
“The government does not appear to be interested in borrowing through PIBs or other bonds, instead it is targeting to raise the money through the National Savings Scheme (NSS) whose rates have been recently revised,” said an analyst.
The government accumulated Rs303.8 billion through the sale of PIBs till June 30. Instead of adding up, a sum of Rs3.7 billion has gone out of the PIBs account.
The government has allowed institutions to invest in the NSS which was severely criticised by the banks as they started noting the flight of deposits from banks to NSS.
“The NSS had been a main source of government borrowing in the past but the rates were deliberately cut to a historical low in 2003-04,” said a banker.
The reason for the rate cut was to discourage people from investing in the NSS which used to give far better returns than other bank instruments. However, the rising trend of interest rates in 2004-05 made the NSS unattractive and government turned towards banks for borrowing, fuelling the monetary growth during the past couple of years.
As of June 30, deposit mobilisation amounted to Rs856 billion against Rs854 billion only a year ago.
“The first quarter of financial year 2006-07 reflects the change in the pattern of mobilisation of deposits through NSS which is a source of concern for banks,” said the banker.
The first quarter official figures are yet to be released but banks said they had invested heavily in the NSS.
