Market Experts Explain Low Patronage of FGN Savings Bonds

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Goddy Egene

Capital market operators have advised the Debt Management Office (DMO) to embark on more aggressive awareness creation in order to attract more patronage for the Federal Government of Nigeria Savings Bonds (FSB).

The DMO had last March introduced the FSB on behalf of the federal government as part of its efforts to promote savings culture in Nigeria and improve financial inclusion, particularly amongst retail investors.

The bond is expected to also provide additional funding for the government. However, investors’ participation in the FSB has remained poor despite the increase in the coupon rate (interest rate) on the bond.

For instance, the amount allotted dropped consistently from N2.07billion in March 2017 to N400.57million in July 2017, while the total number of investors also dropped from 2,575 in March 2017 to 779 in July 2017.

The coupon rate on the 2-year Bond, which was 13.01 per cent in March 2017 stood at 13.39 per cent in July 2017 while the coupon rate on the 3-year Bond which was 13.79 per cent in April, the first time a 3-year bond was issued, stood at 14.39 per cent in July 2017.

The coupon rates for the August 2017 offer are 13.535 per cent and 14.535 per cent for the 2-year bond and 3-year bond respectively. This means that the August bond issues carried higher coupon rates than the July issues and represent the highest coupon rates since inception.

But the persistent increase in the coupon rates, have not attracted enough subscription to the bond despite the steady decrease in the inflation rate in the country since January 2017.

Commenting on the development, analysts at FSDH Research said one of the factors responsible for the poor patronage of FSB is we can attribute is the rally that dominated the equity market in Nigeria.

“The Nigerian Stock Exchange All Share Index (NSE ASI) appreciated by 51.47% between March 01, 2017 and August 9, 2017. Many retail investors diverted funds to the equity market to take advantage of capital appreciation. Other factors are: the low awareness of the benefits and characteristics of the Bond; the low liquidity of the Bond at the secondary market and the high yield on the Nigerian Treasury Bill (NTB),” they said.

Speaking on how to increase investors’ patronage, they said the DMO and the stockbrokers can organise investors’ road shows in various cities and schools across the country.

“This will be an avenue to directly engage retail investors on the need for them to hold the bonds in their investment portfolio. The DMO can work with some identified large corporate organisations that have large number of employees to encourage their employees to invest in the Bonds on a monthly basis. The DMO can also work with government agencies to encourage civil servants to invest in the bond,” the analysts stated.

According to them, these strategies should be able to attract a minimum of one million subscribers on a monthly basis.
“If this is achieved and the monthly subscription amount increases, the overall weighted average interest rate on the FGN debt will drop,” they said.