NSE admits N1b FGN savings bond, experts decry low patronage
The FGN Savings Bond was designed with attractive returns and low risk investment avenue to low income earners, aimed at deepening the national savings culture and provide opportunity to all citizens irrespective of income level to contribute to national development.
The bond was launched in March 2017, with two-year tenor, by the Debt Management Office (DMO) and since April 2017, has been issuing two tenors of the bond – two-year and three-year, on a monthly basis, at average interest rate (coupon) of 13.01 per cent and 14.01 per cent respectively.
However, the rate has fallen to 11.62 per cent and 12.62 per cent respectively, as details of the bond as contained in the NSE X-Compliance report revealed that, while the two-year Savings Bond attracted N206.557 million proceeds at the end of March 2019, the three-year tenor Savings Bond in subscription value in the first quarter (Q1) 2019, stood at N816.482 million.
Stakeholders noted that the FGN savings bond has not attracted expected investments, indicating local investor apathy, a similar trend also noticeable at the equities market.
The Director-General of DMO, Patience Oniha, had recently announced that N10.5 billion has been made from the bonds, while 13,200 retail investors have so far invested in the fixed income instrument.
She said that despite huge money spent on television and radio advertisements for awareness, the level of patronage has been far below expectation, but expressed hope that more investors would take advantage of the securities to make money.
Oniha recalled investor apathy that trailed the capital market since after the 2008 market crash, adding that a lot needed to be done to attract local retail investors back to the market.
“Financial inclusion requires a lot of investor education, technology and financial literacy. We are looking to take some cues from some of the technologies deployed in Kenya where people can invest in the capital market through the use of mobile phones. The DMO will be glad to deploy that.
“There was a need to build investors’ confidence in the market by being transparent and improving corporate governance. We also need to do a lot in terms of investor education using the media and other platforms. Any firm interested in collaborating with us to drive this goal is welcome,” she said.
But the Managing Director of Cowry Asset Management Limited, Johnson Chukwu, has cited the economic situation of the low income earners, who are the target of the Savings Bond, as the major factor undermining investment in it.
“What happened when the bond was introduced in March 2017, was that this class of investors moved their savings from banks into the Savings Bond. This accounted for the huge response to the first offer. However, their economic condition is yet to improve for them to generate new savings and thus invest more in the Savings Bond,” he said.
He also blamed this on limited information on how to trade the product either as traders or investors as well as the structure of the instrument not structured as a regular bond, which makes the pricing slightly opaque.
The Managing Director of Sofunix Investment and Communications, Sola Oni, said: “We must appreciate that the philosophy of the FGN Savings Bond transcends the economics of capital mobilization. The bond offering is targeted at low income earners as a way of encouraging savings culture. At the commencement of the programme, there was intensive publicity and this enhanced patronage.”
He however, said such an uncompetitive yields, compared to other asset classes in fixed income securities became an obstacle. For instance, the yield on Treasury Bill became more profitable.