Dr Khondaker Golam Moazzem on savings certificates, published in The Independent on Saturday, 2 November 2013.
Savings certificates sales up by 363pc in Q1
Ziaur Rahman
Sales of savings certificates marked a significant rise during the first quarter in current fiscal (2013-14) as most of the investors prefer to invest in the state-owned instrument rather than banks mainly because of high interest rates.
According the Directorate of National Savings (DNS), savings certificates worth around Tk 20.97 billion has been sold in the first quarter (July-September) of the current fiscal as against Tk 4.53 billion during the same period in last fiscal. The growth is about 362.88 per cent.
The prolonged slump in the country’s capital market and decrease in deposit rates in banks and political uncertainties are learnt to be the main reasons which, sources said, encouraged investors to turn to savings certificates.
“The prolonged bearish trend in the country’s capital market, huge idle money in banks and lack of save investment opportunities encourage people to invest in saving instruments,” said Centre for Policy Dialogue Additional Research Director Dr Khondaker Golam Moazzem.
The capital market has been passing a through a crucial period over the last few years and instead of stabilising, it is getting more uncertain day by day shying away prospective investors. “Many of the investor had expected the market to stabilise ahead of the national election but that is unlikely to happen,” said an stock market analyst expressing his frustration. Share prices are plummeting every day due to the uncertainties of national politics. So many investors are turning to risk-free savings certificates, said the analyst.
Sources said that investor confidence in bank deposits had also fallen after a spate of financial scandals in the banking sector in last fiscal.
All these, sources said, make investors turn to savings certificates. The situation, they said, will not change unless the political uncertainty is over.
According to DNS official, the savings tool sales increased as the banks were not offering attractive rates of interest on deposits that discouraged the deposit mobilisation. Many savers were switching over to the government savings schemes due to the lower interest rates on bank deposits.
The Bangladesh Bank has fixed the ceiling of interest rates on different deposits at 12 per cent. Many commercial banks are offering interest rates of up to 10 per cent.
On the other hand, the maximum yield rate on savings certificates is 13.45 per cent. At present four types of savings certificates are on offer — five-year Bangladesh savings certificate, bonds on three-month benefit basis, pension bonds and family savings certificates.
Presently, the rate of return on five-year Sanchayapatra (saving certificate) is 13.19 per cent including 0.99 per cent in Social Security Premium (SSP), three monthly Sanchayapatra (3-year) is 12.59 per cent, the rate for five-year Pensioner Sanchayapatra is 11.45 per cent, the rate of return for Poribar Sanchayapatra is 13.45 per cent and the rate of return for Postal Savings Bank (fixed deposit) is 13.24 per cent.
After a poor volume of sales recorded over the last couple of years it bounced back in the last three months, said an official of DNS. If the trend continues, the government can see a boom in savings instrument sales in current fiscal as the volume of encashment will also be much lower than that of the last year.
A DNS official told the Independent that about 80 percent of the bonds sold in July-September period were family savings certificates. The government had decided to borrow Tk 74 billion from bonds sales to meet last fiscal’s budget deficit. Later, the amount was revised to Tk 19.73 billion.
However, the government failed to take the loan since the net amount of sale of savings certificates in 2012-13 fiscal was nearly Tk 7.73 bilion. In the 2013-14 fiscal, the government plans to borrow Tk 49.71 billion from the sale of bonds.
According to the DNS, various types of savings certificates worth around Tk 233.26 billion was sold in the last fiscal. Around Tk 225.53 billion was refunded to customers on maturity of certificates sold earlier and the net accrual stood at around Tk 7.73 billion.