Commercial bankers frown as DMO floats savings bonds

Nigeria is to witness introduction of an entirely new set of bonds in its financial instrument market from March 13 2017, which is to target low income earners, according to the Debt Management Office (DMO).

On its website, the debt management outfit said it has perfected plans to offer such bonds to attract retail investors.

But commercial banks have already frowned at the programme similar to what is operational in savings accounts with conventional banking system.

Though detail on the returns on investments for would-be buyers is still sketchy, the DMO said the new bond is to be programmed for two-and three-year maturities, with interest paid quarterly.

It said the actual rate would be decided based on percentage of patronage, adding that an anticipated 90 per cent success is expected.

But DMO’s last five-year bond, sold in mid February 2017, allowed discount rate of 16.5 pet cent, even as it said the bond was sold to mainly institutional investors.

The report says: “In keeping with Nigeria’s economic growth, the new bonds will be good for savings towards retirement, marriage, school fees, house projects, etc.”

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Bankers, who described the new innovation as encroachment into their areas of service expressed fears that their customers might prefer patronising the bond to their services.

While Nigeria’s commercial banks pay 5 per cent interest on Savings accounts, the DMO is expected to pay up to 5.5 per cent on the bond.

CBN has approved that the lower-income-earners’ bond, as defined by DMO be part of steps at mopping up excess liquidity in the system, believed to be the cause of the country’s rising inflation, which is running at more than 18 per cent annually since 2016.

The bond offer, when it opens on March 13 will end after five days, the debt office stated.

But new issues will be sold every month thereafter.

The minimum subscription will be N5,000 and the maximum N50 million.
Nigeria’s government depends on local borrowing to fund more than half its budget deficit, which is expected to reach N2.36 trillion in 2017.

It issued a $1 billion Eurobond in February and is currently seeking approval from parliament for an additional $500 million Eurobond.

It said it would offer a 20 billion-naira “green bond” in April.

The government also plans to sell a $300 million diaspora bond abroad this year and its first sovereign sukuk (Islamic bond) in the local market.

 

 

 

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