Tribune Online findings revealed that the high return on treasury bills especially the on-going 13.5 per cent coupon rate offer on government bond, against about four (4) per cent interest from commercial banks in Nigeria could be blamed for the development.
The Federal Government this week offered for subscription a two-year and three-year Savings Bonds to investors at 13.535 per cent and 14.535 per cent, respectively from August 7 to August 11, 2017.
A statement from the Debt Management Office (DMO) said the two-year bond would be due in August 2019, while the three-year bond has a maturity date of August 2020.
The offer has a minimum subscription of N5,000 with increases thereafter in multiples of N1,000 up to a maximum subscription of N50 million.
A herd of industry stakeholders described savings bond as a serious threat to banks, noting that no serious investor will ignore a bond that has 13 per cent offer and 100 per cent guarantee.
They argued that the development could undermine confidence in the volatile equities market, as the banking stocks constitute 13 per cent of the overall market capitalisation on the Nigerian Stock Exchange (NSE).
The Federal Government had on March 13th, launched the Savings Bond, which is being issued by the Debt Management Office (DMO), on its behalf. The savings bond has a minimum subscription of N5,000 and a maximum of N50million at 13 per cent coupon rate. The benefit of this bond is that the interest income from the Savings Bond is tax-free.
The bondholder enjoys interest every quarter, which makes it possible for individuals to plan and save towards personal projects. The savings bond is considered liquid, as it would be tradable on the NSE.
It can also be used as collateral for loans, offers guaranteed returns and encourages financial inclusion among low-income households. It enables individuals to enjoy those benefits, which accrue to high-net-worth investors in the capital market, as opposed to savings deposit in commercial banks.
The Chief Finance Officer, Wema Bank Plc, Mr Tunde Mabanwoku, while addressing newsmen over the weekend confirmed the challenge currently faced by the Tier 2 banks.
His words: “What we see now is that customers are increasingly benchmarking treasury bills rates. So, when customers come in that they want to do fixed deposits and you tell them its 12 per cent, they would be comparing what you tell them with Treasury bill rates.
Nigeria’s interbank lending rate jumped to 23 per cent on Friday from just five per cent penultimate week ago after the central bank tightened liquidity.
The more than quadrupling of the rate came after the bank sold a total of N167.60 billion ($459.56 million) in treasury bills on Friday and withdrew an undisclosed amount from lenders to maintain cash reserve ratio.
It did so to support the currency, making naira scarcer in the market and more attractive to hold. Demand also strengthens the currency, helping fight inflation.
The central bank’s sales on Friday amounted to N167.16 billion of 356-day open market operation treasury bills at 18.55 percent, and N439.45 million of the 188-day paper at 17.95 percent.
The total banking credit balance opened at 75 billion naira. But outflows from the system led the market into negative territory, traders said.
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