KATHMANDU, NOV 30, 2012
The washed out performance of government debt instruments among the general public, despite attractive yields and low risk, has compelled the central bank to look for alternatives.
In the last four fiscal years, only about one-tenth of the total issue of public oriented bonds were subscribed.
From fiscal year 2008-09 till 2011-12, Nepal Rastra Bank (NRB) has issued Citizens Saving Bonds and Foreign Employment Bonds worth Rs 19.6 billion, of which bonds worth only Rs 2.75 million were subscribed.
“Since most people are unaware about the benefits of buying bonds, they are not inclined towards purchasing government securities as a form of investment, that is why the bond market in Nepal is almost non-existent,” said director of Public Debt Management Department of Nepal Rastra Bank Dr Gopal Bhatta.
“Only a small group of investors buy these bonds. Those that have realised the value of bonds are repeat purchasers and hold on to it,” Bhatta added. Bonds are fixed income
securities that are considered relatively risk free as people are lending to the government that rarely goes bankrupt. When banks have reduced the deposit interest rate to six per cent, bonds are still being offered at higher than nine per cent coupon rate for a tenure of four years or more.
Bonds worth only Rs 126.6 million were subscribed of the latest batch of Citizens Savings Bond worth Rs 1.41 billion issued this May. Likewise, another bond meant solely for the public — Foreign Employment Bond — also got scantily subscribed in the last three years.
This year too, of the issues worth Rs one billion, only Rs 8.6 million worth of bonds were subscribed.
Nepal Rastra Bank had even allowed Non Resident Nepalis to purchase the bonds with the hope of expanding participation which was in vain.
Such a pathetic subscription rate has made Nepal Rastra Bank consider about introducing a Primary Dealership System for the bonds that it issues.
In primary dealership, government securities are directly sold to entities known as primary dealers that buy bonds directly from the central bank to resell them, thus acting as a market maker of government securities.
These primary dealers bid for government bonds competitively and then redistribute them to their clients, creating the initial market in the process.
Nepal Rastra Bank is conducting a study regarding eligible institutions, their roles and responsibilities and privileges they will get.
“The primary dealership system is supposed to stimulate the bonds market and entry of more players in dealing with bonds will increase the participation of general investors in government securities,” pointed out Dr Bhatta.
“Bond yield calculation is slightly more complex than that of equities, hence bonds seem to be complicated for investors, but brokers can come to the aid of the investors on the matter,” said Dr Bhatta.
According to the president of Stock Brokers Association of Nepal (SBAN) Anjan Raj Paudyal, there are no takers for bonds in the secondary market.
There are 16 different development bonds worth Rs 22.4 billion listed at Nepal Stock Exchange which has never been traded.
“Though government securities provide good returns on investment, the general public has not shown an interest in the bonds due to the lack of awareness regarding the issuance of bonds,” Paudyal said.
Source: THT
The washed out performance of government debt instruments among the general public, despite attractive yields and low risk, has compelled the central bank to look for alternatives.
In the last four fiscal years, only about one-tenth of the total issue of public oriented bonds were subscribed.
From fiscal year 2008-09 till 2011-12, Nepal Rastra Bank (NRB) has issued Citizens Saving Bonds and Foreign Employment Bonds worth Rs 19.6 billion, of which bonds worth only Rs 2.75 million were subscribed.
“Since most people are unaware about the benefits of buying bonds, they are not inclined towards purchasing government securities as a form of investment, that is why the bond market in Nepal is almost non-existent,” said director of Public Debt Management Department of Nepal Rastra Bank Dr Gopal Bhatta.
“Only a small group of investors buy these bonds. Those that have realised the value of bonds are repeat purchasers and hold on to it,” Bhatta added. Bonds are fixed income
securities that are considered relatively risk free as people are lending to the government that rarely goes bankrupt. When banks have reduced the deposit interest rate to six per cent, bonds are still being offered at higher than nine per cent coupon rate for a tenure of four years or more.
Bonds worth only Rs 126.6 million were subscribed of the latest batch of Citizens Savings Bond worth Rs 1.41 billion issued this May. Likewise, another bond meant solely for the public — Foreign Employment Bond — also got scantily subscribed in the last three years.
This year too, of the issues worth Rs one billion, only Rs 8.6 million worth of bonds were subscribed.
Nepal Rastra Bank had even allowed Non Resident Nepalis to purchase the bonds with the hope of expanding participation which was in vain.
Such a pathetic subscription rate has made Nepal Rastra Bank consider about introducing a Primary Dealership System for the bonds that it issues.
In primary dealership, government securities are directly sold to entities known as primary dealers that buy bonds directly from the central bank to resell them, thus acting as a market maker of government securities.
These primary dealers bid for government bonds competitively and then redistribute them to their clients, creating the initial market in the process.
Nepal Rastra Bank is conducting a study regarding eligible institutions, their roles and responsibilities and privileges they will get.
“The primary dealership system is supposed to stimulate the bonds market and entry of more players in dealing with bonds will increase the participation of general investors in government securities,” pointed out Dr Bhatta.
“Bond yield calculation is slightly more complex than that of equities, hence bonds seem to be complicated for investors, but brokers can come to the aid of the investors on the matter,” said Dr Bhatta.
According to the president of Stock Brokers Association of Nepal (SBAN) Anjan Raj Paudyal, there are no takers for bonds in the secondary market.
There are 16 different development bonds worth Rs 22.4 billion listed at Nepal Stock Exchange which has never been traded.
“Though government securities provide good returns on investment, the general public has not shown an interest in the bonds due to the lack of awareness regarding the issuance of bonds,” Paudyal said.
Source: THT
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