NAN-HE-2
Bonds
By Chinyere Joel-Nwokeoma
Lagos, March 13, 2017 (NAN) Some financial experts on Monday advised regulators of the Federal Government Savings Bond to create awareness in rural areas to promote savings culture among rural dwellers.
The experts told the News Agency of Nigeria (NAN) in interviews that the regulators needed more awareness campaign to ensure maximum participation of retail investors.
NAN reports that the bond opened for subscription on Monday on the Nigerian Stock Exchange (NSE).
Dr Uche Uwaleke, Head of Banking and Finance Department, Nasarawa State University, Keffi, urged the Debt Management Office (DMO), Securities and Exchange Commission (SEC) and NSE to go beyond television adverts and flyers in the campaign.
Uwaleke said that the savings bond was a good initiative, adding that it would promote savings culture, especially among low income earners.
“With just N5,000, an individual can invest in the FGN savings bond, which pays interest every quarter and has no risk (except inflation risk) since it is backed by the Federal Government.
“Another attractive feature of the bond is that it is a medium-term (from two to three years) bond unlike treasury bills that are short-termed and do not really encourage long-term savings,” Uwaleke stated.
He said that the bond would be liquid since it would be quoted on the secondary capital market.
According to him, the new asset class will boost activities and size of the bond market as well as enhance the revenue of stockbroking firms that will participate in the processes.
Prof. Sheriffadeen Tella of the Department of Economics, Olabisi Onabanjo University, Ago-Iwoye, lauded the government for floating the bond.
Tella said that bond-floating by government to raise funds from domestic market often served as a test of confidence in the economy.
Tella said that it would be commendable if the Federal Government could raise the required funds.
“If the government is able to meet its target, it is a sign of confidence in the capital market and economy generally and vice versa.
“We need to note, however, that investment in bond by the public or corporate bodies will affect the quantum of available funds for private sector, which is called crowding out effects.
“If the fund raised by government is, however, used to fund small and medium scale enterprises rather than finance government consumption, the economy will be better, since they (enterprises) are part of the private sector,” Tella said.
NAN reports that the FGN Savings Bond is being issued at 13.01 per cent interest rate to retail investors.
The DMO said that the bonds will be “good for savings towards retirement, marriage, school fees, housing projects”.
According to the debt office, new issues will be sold every month.
The minimum subscription will be N5,000 and the maximum N50 million.
The bond is to enable the government depend on local borrowing to fund more than half of its budget deficit, which is expected to reach N2.36 trillion this year.
The government issued a $1 billion Eurobond last month and is now seeking approval from the National Assembly for an additional $500 million Eurobond.
Last week, it said that 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.
Meanwhile, the NSE All-Share Index last week recorded a growth of 225.93 points or 0.90 per cent to close at 25, 238.01 from 25,012.08 posted in the previous week.
Also, the market capitalisation, which opened at N8.656 trillion, improved by N78 billion or 0.90 per cent to close at N8.734 trillion. (NAN)
JNC/JI/IGO
(Editing by Joseph Idika/Ijeoma Popoola)