Afters the financial world collapsed in what is seen as the worst crisis ever, many people across the world have been running for cover – literally, and in most cases relying on the state sector to place their money.
In the US for example, the public are investing in treasury bills finding them more secure even though the rate of return may be less than outside and much less in the now dubious set of unregulated institutions and funds that have sprung up in the last decade.
Reliance on state institutions is also spawning a new era of protectionism where Laissez-faire economies like the US is pumping in funds to control the financial sector at a never-before level.
That has triggered controls and subsidy-bailouts in the rich world which is hurting economies like ours where imports are dependant on export revenues.
In The Sunday Times FT’s now-popular email polling series, the question asked this week was: What is the safest investment between state and private commercial banks? Pat came the answer: state banks – at least the majority of respondents. There was a clear indication that it’s better to be safe (lower interest) that sorry (high interest/collapse of the institute)!
In fact even in Sri Lanka, there is a shift in the people’s mindset from private investment-mopping institutions to state banks. Officials at the Bank of Ceylon and the People’s Bank say deposits have increased in recent months essentially from those who banked in private institutions.
A popular view – that also came out strongly in the poll – is that treasury bills (TBs) is the safest and a decent interest- earning instrument. If so why aren’t TBs as popular or as attractive as banks or finance companies’ deposits to put your money in?
Simple: Lack of interest by the intermediaries – banks and primary dealers – in promoting these instruments which are gilt-edged securities and secure as heaven.
A senior banker said the only people who are savvy about buying TBs are predominantly around Colombo. He said access to these instruments is a problem, particularly in the outstations where most banks do not offer the service. “If you walk in or call a Bank of Ceylon or People’s Bank branch outside Colombo, for example, and ask for a rate on a treasury bill, they wouldn’t know what you are talking about,” he said.
Banks prefer deposits coming directly to them as fixed deposits or savings as that is the core business and directly contributes to branch profits. “This is not so for treasury bills as that generally, the accounting systems we use, accrues to (the) head office of treasury. Therefore, branch managers do not have any incentive to sell this stuff. Only if a high net worth customer asks will the branch staff offer the product,” he said adding that this is to retain goodwill with the customer.
Thus it is clear banks prefer to promote their own instruments rather than TBs from the Central Bank. Currently a 12-month TB investment will yield 16.47 % per annum, a 6-month TB 15.99% and a 3-month TB 14.4% which is higher than what most banks will pay on a fixed deposit. These instruments are guaranteed by the government.
What is required is a new institutional structure to promote the TB investment habit amongst the people so that there is sufficient awareness created instead of relying on banks and primary dealers who have failed to create that kind of awareness similar to how finance and unregulated companies attract deposits from the public.
The National Savings Bank whose deposits are guaranteed by the state can act as an agent and run a promotion that is matched with the likes of private banks and finance companies. The investing public needs to know more about safe, reliable investment instruments and its return on investments – not only the plethora of information that the CB offers regularly on registered and unregistered deposit-collecting institutions. |
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