CDNS raises profit rates on saving certificates

The government has revised rates of profit by up to 36 basis points on several saving certificates to provide benefit to investors and encourage them to invest more in such instruments.

The Central Directorate of National Savings (CDNS), which offers saving certificates to individual investors, reinvests the money in government papers like Pakistan Investment Bonds (PIBs) and treasury bills (T-bills).

“Yields (rates of return) on long-term three to 10-year PIBs have improved in the secondary market in recent days as the benchmark interest rate has bottomed out at 7%,” Arif Habib Limited Head of Research Tahir Abbas said while talking to The Express Tribune.

CDNS - which works under the Ministry of Finance - announced on Tuesday an increase in the rate of profit by 36 basis points each on the Pensioner Benefit Account, Shuhada Family Welfare Account and Behbood Saving Certificates to 10.32%.

The rate of profit on Defence Saving Certificates was increased by 34 basis points to 8.44% while the rate of profit on Regular Income Certificates was revised upwards by 20 basis points to 7.80%. The new rates came into effect on Tuesday (August 4).

This is for the second time in about a month that the CDNS has increased the rates of profit on saving accounts and certificates. Earlier, it revised up the profit rates by up to 16 basis points on July 2.

Abbas said yields on the PIBs had been on the rise since the State Bank of Pakistan (SBP) deferred the scheduled meeting of its Monetary Policy Committee (MPC) to September from July as there was no need to review the existing monetary policy.

Earlier, the MPC cut the benchmark interest rate by a massive 625 basis points in five scheduled and emergency meetings in the past three months. The SBP usually reviews the monetary policy after every two months.

“There was expectation of another cut of 50 basis points in the interest rate in July,” he added. “However, the postponement of meeting signalled that the interest rate has bottomed out at 7%. Accordingly, the market has adjusted the yields upward on government papers (PIBs).” The rate of profit on investments is higher on longer-tenure government papers and lower on short-term papers. The CDNS usually invests in three, five and 10-year PIBs and short-term (three, six and 12-month) T-bills. Yields on T-bills, however, are on a downtrend.

Accordingly, the CDNS has revised down the rate of profit on Special Saving Certificates (Registered)/Accounts by 18 basis points to an average of 6.87%. The rate of profit on three-month short-term saving certificates has been reduced by 68 basis points to 6.12%, on six-month certificates by 62 basis points to 6.14% and on 12-month certificates by 46 basis points to 6.20%. The CDNS left the rate of profit unchanged at 5.50% on the savings account.

The CDNS is managing the investment portfolio of around seven million individual and institutional investors. The government has, however, later banned investment by institutions in saving accounts and certificates. The government utilises the investment attracted through the national saving accounts and certificates to bridge its budgetary deficit. A news agency reported the other day that the CDNS had collected a total of Rs377 billion in the previous fiscal year ended June 30, 2020 against the target of Rs352 billion.

Published in The Express Tribune, August 5^th, 2020.

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