Capital market experts have warned of imminent liquidity crisis against deposit money banks following the 13.5 per cent coupon rate offer on government bond, against four per cent interest from commercial banks in Nigeria.
Indeed, the experts who spoke with The Guardian, 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).
Furthermore, investors’ who were supposed to take a position on the banking stocks with the current bullish situations may opt for the savings bond that offers guaranteed returns.
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.
The DMO had encouraged Nigerians to invest a minimum of N5,000 and maximum of N50million in FGN Savings Bond, adding that any amount higher than N50million should be invested in the old bond, known as Federal Government of Nigeria Bond, FGNB.