About 40 per cent of bank deposits in the top 10 banks in the country are in dollars as Nigerians begin to move the monies from bank accounts to mutual funds.
Head of research at Coronation Asset Management, Guy Czartoryski, who stated this at a virtual press conference yesterday noted that the lower yield in the money market as well as low interest rate environment had seen more individuals move their funds from their bank accounts to mutual funds.
He also noted that the foreign exchange restrictions of the Central Bank of Nigeria (CBN) would limit the ability of Nigerians to invest in dollar funds, which he said have better returns.
He said: “We looked at the top 10 banks and the breakdown of their deposits showed that 40 per cent of their deposits are in dollars and it is quite astonishing.”
Noting that dollar funds provide quite a good return, Czartoryski said: “It’s a great asset to have the problem in access to dollar funds is forex restrictions which is part of the currency management regime of the CBN. If this is not the case we would have a lot of capital flight and things will be difficult to manage.
“However it seems fair because around 40 per cent of the bank deposits in this country are in dollars. Dollar is something we are all very familiar with. The restrictions are there for a purpose and it is hard to argue with that. It (dollar fund) is mainly for people who have their dollars offshore and in those cases it is easier for those offshore.”
Czartoryski, who was speaking ahead of the release of Coronation Research new report titled: ‘The Shifting Appetite of the Nigerian Investor: From Savings to Mutual Funds’ said “As people are leaving bank deposits behind and going into mutual funds, they are getting a better return and taking on risks.”
Mutual Funds are growing rapidly and are quickly becoming the default destination for Nigerians’ savings. Just as the Pension Funds began to take off a decade ago, now Mutual Funds are growing fast.
The total value of Money Market funds rose 11 per cent and Fixed Income funds rose by 59 per cent in the first half of this year. Mutual Funds are set to become a large part of the savings industry. In a few years they may rival Nigeria’s Pension Funds in size.
In its new report, ‘The Shifting Appetite of the Nigerian Investor: From Savings to Mutual Funds,’ the research explains the conditions behind this growth. The total Assets Under Management (AUM) of Nigeria’s Mutual Funds (also known as Collective Investments Schemes) rose by 305 per cent in the period between 2015 and 2019, more than doubling in inflation-adjusted terms.
As commercial banks progressively offered lower rates on Savings Accounts, more money switches to Mutual Funds. And the introduction of tech-based savings platforms introduces a new generation of young savers to Mutual Funds.
“The Mutual Fund industry in Nigeria faces two challenges. The first is risk management. The era of high returns from Nigerian Treasury Bills ended in 2019. Today, investors need to invest in a variety of other asset classes in order to obtain a reasonable return, without becoming totally exposed to any one asset class.
“That means that investment management is more complex and more necessary than before. Second, there needs to be more information on fund performance in order to facilitate fund selection by investors and professional advisers.
Fortunately, the industry and its regulator are moving in this direction, preparing the ground for a hugely expanded Mutual Fund industry in future, and creating the conditions for a significant capital base for the nation,” the report pointed out.