Saxo Bank customers in the Middle East and North Africa can now lend out their stocks and exchange-traded funds (ETFs) to earn additional passive income on their investment portfolios to help offset the affects of global economic uncertainty and financial market volatility.
The stock lending service will open up an alternative stream of revenue on stocks that retail investors have in their portfolios while allowing them to sell at any time, the Danish investment bank said on Thursday.
“With macroeconomic uncertainty and an inflationary environment, most investors want to make their money work harder for them,” said Damian Hitchen, chief executive of Saxo Bank Mena.
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Stock lending, which is considered riskier than traditional stock investing, allows retail investors to make their stocks and ETFs available for lending to third-party market participants, who could be looking to short markets in which they don’t own any shares, or to borrow assets to meet a demanding delivery deadline, Saxo Bank says on its website.
The global economic uncertainty has been fuelled by the Russia-Ukraine war, record-high inflation and rising interest rates as central banks continue efforts to rein in the cost of living, resulting in stock market volatility.
Last month, the UAE Central Bank raised its base rate for the overnight deposit facility by a quarter of a percentage point to 4.65 per cent, from 4.4 per cent, after the US Federal Reserve increased its policy rate by 25 basis points.
The cost of borrowing has risen in line with the interest rate increases but banks have been slower to pass on the benefits to savers, while market volatility has dragged down the value of investors' portfolios.
Digital wealth managers StashAway and Sarwa last month introduced no-fee, high-interest cash accounts of 4 per cent and 3 per cent, respectively, to help customers boost their savings power.
The interest rate on Saxo Bank’s stock lending service depends on which stocks are lent out, it said.
“Clients will receive a payment depending on the market demand for the securities on loan,” it added.
“Clients will still be exposed to the price movement of their stocks, will still earn dividends on their portfolio and can sell their stocks at any point irrespective of the loan.”
Stocks that are in high demand and are hard to borrow in the marketplace typically receive a higher fee when they are lent out, according to Saxo Bank’s website.
The investment bank’s website also gives examples of the annualised interest rates paid to clients in February.
These include AMC Entertainment, which offers an annual stock lending interest rate of 65.1 per cent, and Beyond Meat, which offers 36.4 per cent.
Saxo Bank takes a 50 per cent cut on the interest payments, so if an investor lent out their AMC Entertainment shares in February, for example, the interest payment they would receive would be 32.55 per cent.
“Saxo Bank acts as the intermediary and will ensure that the process is handled in a secure and safe way, and will provide the client with collateral in the duration of the loan,” it said in the statement.
Zero-commission trading app Robinhood introduced stock lending in May last year.
In disclaimer on its blog post to announce the new service, Robinhood said there is a risk of default and “operational risks associated with securities lending that could affect, for example, whether or when your securities are loaned or recalled, collateral is collected, or payments are made”.