Sunday, Mar 10, 2013

Dubai: Since its inception in 2006, National Bonds has gained popularity among residents in the UAE, largely due to the allure of winning a jackpot and a regular annual return relatively higher than most bank deposits.

However, as more and more people store their savings in bond certificates, the yearly profits appear to trickle in. Last week, National Bonds announced an annual profit rate of up to 1.5 per cent for 2012, a far cry from the 7.07 per cent return generated in 2008 and the lowest since the launch of the scheme.

Mohammad Qasim Al Ali, CEO of National Bonds Corporation, talks to Gulf News about the reason behind the falling bondholder earnings and what the future holds for savers.

National Bonds paid 7.07 per cent to bondholders in 2008, much higher than last year’s profit rate. What’s the reason behind the recent decline in profitability?

There were several macro-economic repercussions from the global financial crisis that hit the world in early 2008. Profitability and interest rates have plummeted worldwide, with some financial institutions sustaining major financial losses. Given this scenario, National Bonds continued its capital preservation strategy being a low-risk savings scheme still yielding a higher rate of returns than any other saving tools or programmes offered in the country. We believe this says a lot about the strength of National Bonds as a reliable savings scheme.

Would you say this is just a temporary slump?

Historically, economic downturns have been followed by periods of recovery and growth. Already, global indicators point that a recovery is underway, with important markets like the US enjoying modest growth. In other parts of the world, particularly in the Eurozone, the economic scenario is still challenging. The local market has also been showing good recovery signs whether in the real estate sector or the equity market. Hence, it’s a matter of time before recovery is more uniform around the world.

If bondholders get 1.5 per cent for last year, aren’t savers better off putting their money in the bank?

The average profit rate offered by Islamic banks for one month deposit in 2012 was 1.1 per cent, while commercial banks offered 0.97 per cent. You have to compare savings schemes to each other, as National Bonds offer a highly liquid scheme i.e. customers can redeem their funds after 30 days from issuing the bonds. Still, we offered a profit rate that is very close to the average one year deposit profit rate in the market combined with the richest prize rewards pool in the UAE. Furthermore, the minimum balance for profit entitlement is as low as Dh100, which is not the case in many savings schemes. It’s also important to note that our value offer goes beyond the mere profit rate as compared to banks which include prizes, Takaful cover, pledging of bonds saving plans, etc. Until today a total of 120 bondholders were able to become millionaires through their participation in our saving programme.

What is your profit target for this year?

This depends on market sentiments and market performance. As usual, we will maintain a low-risk approach preserving the fund’s capital while aiming to grow the bondholders’ investments.

With the profits declining, what changes in strategy does National Bonds plan to adopt, to get back on track and stop the profits from falling even further?

From its inception in March 2006, National Bonds Corporation has worked relentlessly towards making regular saving a rewarding experience. Our scheme’s continued strategy is to work towards offering sustainable returns in the future on bondholders’ investments in addition to offering a rewards programme that is second to none.

What’s the current size of your assets and where do you invest them?

Currently our assets are about Dh5 billion, invested in a balanced and well diversified investment sectors such as money market instruments, fixed income sukuks, income generating real estate, private equity and a limited portfolio in equity markets.

Your product seems to attract a diverse class of customers. Tell us briefly about the profile of your bondholders. How much money do they save on average?

We enjoy a diverse portfolio of savers that includes youngsters, working adults, females and the elderly. We are particularly pleased to note that an increasing number of women are opting to save regularly with National Bonds. Female bondholders saw an increase of 9 per cent and minor segment represents 15 per cent of the customer portfolio during 2012.

Do you expect to attract more bondholders this year, even with the falling profits?

Over the past 3 years, the average rate of the annual increase in bondholders has been six per cent. A conservative estimate for 2013, therefore, would translate to 40,000 new bondholders. A key growth factor for 2013 will be the momentum of the “Employee Savings Programme” which encourages employees to save regularly via direct deduction from their payroll as an alternative retirement plan.

By Cleofe Maceda, Senior Reporter

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