The FGN Savings Bond: What does this mean for banks?

A new savings bond aimed at retail investors could shake up Nigeria’s banking industry!

Source: DMO

The new savings bond being planned by Nigeria and targeted at retail investors could inadvertently help shake up its entrenched banking system as well as boost real returns for millions of bank customers with savings accounts.

The Debt Management Office (DMO) said last week that the new savings bond will go on sale later this month and that two- and three-year maturities will be offered, with interest paid quarterly.

The interest rate has yet to be announced, but the Nigeria paid 16.5 percent on a five-year bond sold to institutional investors last month.

The bonds will be “good for savings towards retirement, marriage, school fees, house projects,” the debt office said.

Savings accounts at Nigeria’s commercial banks pay up to 5 percent in interest which is well below the monetary policy rate (MPR) of 14 percent, but the country’s inflation is running at more than 18 percent annually.

Meanwhile banks charge as high as 23 percent to customers on loans.

Zenith Bank the only Nigerian lender that has released Full Year 2016 results booked N273.3 billion in interest income on loans and advances to customers.

Interest expense paid on current, savings and time deposits by customers came in at N110.9 billion or only 40 percent of interest income.

The savings bond offer if popular could push deposits out of commercial banks into Government bonds in which retail investors are mostly shut out of currently.

Zenith Bank for instance earned N48.73 billion in interest income from Government and other bonds in 2016.

The minimum subscription for FGN bonds is N50 million compared to the minimum subscription N5, 000 ($16) for the FGN Savings bond.

The bond offer will open on March 13 and end after five days, the debt office said.

New issues will be sold every month.

Nigeria’s government depends on local borrowing to fund more than half its budget deficit, which is expected to reach N2.36 trillion this year.

It issued a $1 billion Eurobond last month and is now seeking approval from parliament for an additional $500 million Eurobond.

Last week, it said it would offer a N20 billion “green bond” in April.

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

Source: DMO

 

PATRICK ATUANYA