Government to start trading of T-bills, PIBs thru bourses

Government to start trading of T-bills, PIBs thru bourses

KARACHI: The government seems determined to start the trading of treasury bills (T-bills) and Pakistan Investment Bonds (PIBs) through the stock exchanges. 
As per announcement of the government, settlement would be through the Central Depository Company (CDC), with selected banks to act as market makers.
According to the news, the Pakistan Muslim League-Nawaz government has decided to sell T-bills through stock markets and asked the regulators to frame laws to protect stakeholders’ interest in the government securities and in this connection, Finance Minister Ishaq Dar met stockbrokers, bankers and State Bank governor last week and asked them to make framework to sell T-bills and PIBs through stock market.
Pakistan offers significant scope for dis-intermediation, 84 percent of T-bills, 53 percent of PIBs, and 91 percent of Ijara Sukuks are currently held by banks, the KASB report said.
Outstanding stock of NSS is Rs 2,525 billion, compared to Rs 7,309 billion in banking sector deposits. 
This highlights the popularity of govt saving schemes among Pakistan’s risk-averse savers, despite distribution challenges.
Most vulnerable to such a development would be the fixed deposits of banks, currently totaling Rs 1,669 billion. CASA deposits are likely to remain unaffected, the report said.
According to the analysts the trading of T-bills and PIBs through stock exchange, materialisation in 2014 possible.
According to media reports, the Ministry of Finance is working towards offering T-bill and PIB trading through the stock exchanges. Although this proposal have been on the table for some time, the analyst believed the authorities are determined to fast-track this project.
Like stock purchases, buyers would have settlement accounts with Pakistan’s CDC, and selected banks would act as market makers to provide liquidity to the market.
Significant scope for disintermediation: Pakistan offers significant scope for disintermediation, ownership of government paper is currently very concentrated in the banks. Scheduled banks currently own 84 percent of treasury bills, 53 percent of PIBs, and 91 percent of Ijara Sukkuks. The remaining is mostly divided between corporates, insurance companies, and mutual funds, the retail public has very little direct ownership of government bonds and bills. 
Most of their savings are either invested in NSS, or in the form of banking sector deposits.
Government paper will appeal to risk-averse saving public: The analyst of KASB said, “The product (particularly T-bills) would be successful among Pakistan’s risk-averse saving public. It should be highlighted that T-bill trading can currently be done through an IPS account, but the process is time consuming for retail customers.”
Despite distribution challenges, total money invested in NSS is Rs 2,525 billion, 35 percent of the total banking sector deposit size. This highlights the enormous potential of this product.
Limited distribution channels will limit growth initially, however, distribution networks would be an issue, the analyst said as stockbrokers in Pakistan have limited distribution networks. 
Term deposits to be vulnerable; CASA relatively safe: Most vulnerable to this decision would be the term deposits of the banking system, which currently total Rs 1,669 billion. Banks are unlikely to be able to match the rates or the flexible liquidity offered by govt securities. The analyst said CASA deposits are not likely to be affected significantly, as they are less sensitive to interest rates.

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