By the end of this year, the Ministry of Finance should issue bonds on the domestic market in the total amount of 50 million euros with a maturity of two to three years.
The goal of issuing domestic bonds would be for their customers to receive annual returns higher than the banks now give them interest on savings, and in this way the state would borrow at significantly lower interest rates compared to the international market.
With the current budget, the Government has the possibility to borrow another 500 million euros, and part of this money would be collected through the fourth issue in a row on the domestic market.
The figure of 50 million euros was stated in the draft of the Fiscal Strategy, which was presented by the Government last week and put up for public discussion. It was announced in the press that the interest could go up to four percent, which is double what commercial banks are offering now.
Minister of Finance Novica Vuković then announced the issue of bonds on the domestic market.
"It is important that the domestic market experiences its development. Somewhere it is estimated that from 300 to half a billion liquid assets are blocked on the Montenegrin banking market. Passive interest rates that have not had their own movement, and we have active interest rates that have not experienced their downward trajectory," said Vuković, who announced an educational campaign for the population.
He said that they would quickly create an environment that would be one of the sources of financing and that would be cheaper for the state than on the foreign market, and would give the citizens a higher return than what they have through captured capital in banks.
According to the latest data from the Central Bank (CBCG), the average weighted effective passive interest rate was 0,23 percent in May of this year and is lower by 0,09 percentage points compared to the same period of the previous year, while compared to the previous month it is lower by 0,03 percentage points. It was 0,01 percent on demand deposits at the end of May, and 1,24 percent on term deposits for a period of three to five years.
Director of the Financial Markets Sector at Hipotekarna banka Gojko Maksimović He told "Vijesta" that investing in the purchase of government bonds can be an investment alternative to saving in banks and that the current yields that clients can achieve by investing in government bonds are higher than the interest on savings offered by banks in Montenegro. He said that the potential issue of domestic government bonds in the amount of 50 million euros will not have any special effect on the banking system, where deposits at the end of June this year were around 5,4 billion euros.
Executive Director of the Montenegro Stock Exchange Milena Vučinić She told "Vijesta" that the institution has the technical and personnel potential to carry out that procedure, as well as that it would bring a number of advantages to the state, investors and the capital market.
The potential issue of bonds was also the topic of the sessions of the Council for Financial Stability.
"The Council assessed this initiative as positive, especially in the context of the development of the domestic capital market and stimulating the savings of the population," it was announced after the Council session held the day before yesterday.
Three successful shows - 263 million
The draft Fiscal Strategy states that the development of the domestic securities market through a new financial instrument will enable the diversification of the debt portfolio, on the one hand, as well as reducing dependence on external sources of financing, on the other hand.
"The very fact that there is a high level of deposits with domestic banks, along with a low interest rate, opens up the possibility of redirecting cash flows from banks to the state budget through the issuance of retail bonds. The Ministry of Finance is preparing an analysis on the possibility of issuing retail bonds for the population (individuals) in 2024, in the amount of up to 50 million euros, with a maturity of two to three years. By issuing retail bonds, the state would enable citizens to place surplus funds on more favorable terms than is the case with commercial banks. Considering the high liquidity of commercial banks, the mentioned product would not threaten the same," the document says.
Maksimović said that he is sure that there is interest in buying government bonds that would be issued on the domestic capital market.
He recalls the successful bond issues of the Ministry of Finance on the domestic market, the first of which was in March 2014, when 43 million was collected for budget financing, the second in 2016, when 80 million was collected, and the last in 2019, when two series were issued bonds (maturity 5 and 7 years) collected a total of about 140 million.
"These data show that the state budget can be partially financed in the country, through the creation and issuance of debt instruments," said Maksimović.
He pointed out that he would not project the interest rate for this issue and as far as he understood it is planned for the last quarter (October - December) of this year.
"Something that should be kept in mind is that there are already issued instruments on the international market - Montenegrin state bonds, and that when issuing new instruments, the current "price" of Montenegrin debt on the international market must be taken as a benchmark. In order to confirm the purchase, the Ministry of Finance must be ready to pay a certain premium, expressed in higher interest for newly issued securities, compared to those present on the market. Specifically, if at this moment the Ministry of Finance would like to issue bonds with a maturity of, say, five years, as a benchmark for the debt price, we can take international Montenegrin bonds with a maturity date of October 2029. As the current yield on the mentioned instruments is around 5,20% per year, it is quite clear what the interest rate could be at the present moment," Maksimović emphasized.
Vučinić told "Vijesta" that the institution has the appropriate technical infrastructure, expert team and rich experience for successful implementation of bond issuance on the domestic market.
She stated that they successfully completed the primary placement of bonds for the state in 2014 and 2019.
"The Montenegro Stock Exchange meets the legal and technical requirements to organize the primary sale of financial instruments, i.e. government bonds, regardless of the model chosen by the state", stated Vučinić, adding that after the primary issue, the next step is the listing of government bonds on the regulated market. in order to create the conditions for the same secondary traffic.
Advantages of the issue
The issue of state securities through the stock exchange allows the state to, as Vučinić pointed out, collect additional capital to finance its projects, such as infrastructural development, education or the health system.
"This is especially useful in situations where it is necessary to alleviate the fiscal deficit or cover other financial needs. In addition, the stock market attracts different types of investors, including institutional investors, individual investors and foreign investors. This enables a broad base of potential buyers of government securities, which increases market liquidity and reduces the risk of dependence on a single source of funding. Issuance through the stock exchange provides transparency regarding the conditions of issuance and bond placement, which increases investors' confidence in government securities, because they feel more secure when they have clear information about the financial instrument," said Vučinić.
Among these benefits is that the state can adjust the issuance of its securities based on current needs and market conditions.
"This enables better management of public debt and adaptation to changes in economic conditions. Through the issue of bonds, the state contributes to the development of the local capital market, which in the long term can stimulate economic growth and the development of the financial sector. It is also an incentive to invest, because the stock market allows citizens to invest in the state and its future development and success, which promotes the culture of investment, that is, creates opportunities for citizens to invest in a safe financial instrument that brings interest in the form of interest, and encourages the growth of financial literacy." , said Vučinić.
She clarified that there are two trading methods for organizing the primary sale in accordance with the rules: a continuous public offer, which is an alternative to the registration of national bonds at bank counters, and a public offer with bidding - an auction trading system - mainly intended for institutional investors, banks, companies and insurance companies. societies.
The Stock Exchange supervises the trading process, so trading must be conducted in accordance with the Capital Market Law and the Stock Exchange Rules. The Government - Ministry of Finance is a special member of the Montenegro Stock Exchange, which means that it has direct access to the trading system of the Stock Exchange, i.e. the possibility to trade government bonds and government bills in the name and on behalf of the Special Member of the Stock Exchange, by the administrative body determined by the organizational regulations of the state administration. The stock exchange has six authorized members - three banks (Erste Banka, Hipotekarna Banka and UCB Banka) and three investment companies, which will represent and trade on behalf of bond buyers.
In February 2023, Croatia borrowed 1,85 billion euros by issuing domestic bonds, while buyers will have a yield of 3,65 percent. The maturity date is two years, and, as announced by the Croatian Government at the time, customers will benefit as if they had paid the money over two years with an interest rate of 3,65 percent, instead of the average interest rate of 0,5 percent in their banks.
Government bonds are a safe investment
Maksimović said that investing in the purchase of government bonds can be an investment alternative to saving in banks.
"The above has already been recognized by clients and citizens, so in the last few years we have a trend of increasing interest of clients in investing in government bonds. The current yields that clients can achieve by investing in government bonds are higher compared to interest on savings offered by banks in Montenegro. On this basis, investing in government bonds brings clients a more profitable investment. In investments, the basic rule applies: higher risk, higher yield", said Maksimović.
According to him, according to theory, placements in government bonds represent the safest type of investment, and if these two investments (savings in banks and investing in government bonds) were viewed only from the point of view of risk and yield, we can conclude that the aforementioned theory is not present in practice in Montenegro.
"The Montenegrin banking system is characterized by high liquidity, and from the point of view of the banks operating in Montenegro, the potential issue of domestic government bonds in the amount of 50 million euros will not have any special effect on the system. I would like to point out that the amount of deposits at the end of June of the current year is about 5,4 billion euros, and the potential outflow of 50 million euros represents a decrease of about 0,92%, which cannot threaten the liquidity of the banking system at any moment," Maksimović pointed out. .
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