The National Pension Commission has warned Pension Fund Administrators against investing in the Additional Tier-1 Capital of Deposit Money Banks.

In a circular addressed to all licensed Pension Fund Operators, which was signed by the Director, Surveillance Department, A.M. Saleem, PenCom said that the definition of AT1 doesn’t meet the provisions of assets that PFAs can invest in.

The Commission said that it has recently been inundated with requests from Pension Fund Administrators seeking to invest pension fund assets in Additional Tier 1 Capital instruments of banks.

“AT1 as approved by Central Bank of Nigeria regulations ‘is perpetual, i.e., there is no maturity date and there are no incentives to redeem.’ This provision is contrary to Section 2.4 of the Regulations on Investment of Pension Fund Assets, which states that ‘PFAs shall not invest Pension Fund Assets in instruments that are subject to any type of prohibitions or limitations on the sale or purchase of such instrument, except open/close-end/hybrid funds and specialist investment funds allowed by these Regulations.’

“Arising from the foregoing, PFAs cannot invest pension fund assets in Additional Tier 1 Capital instruments issued by Deposit Money Banks.”

According to the PenCom’s regulation on investment of pension fund assets, PFAs have guidelines as to where they can invest.

They are allowed to invest in bonds issued by the Federal Government of Nigeria or state governments or the Central Bank of Nigeria; Nigerian Treasury Bills and certificates issued by the CBN; ordinary shares of public limited companies; bank deposits and bank financial instruments (bankers’ acceptances and certificates of deposit); asset-backed securities; and investment certificates of close-end investment funds or hybrid investment funds.

However, all investment instruments in which Pension Fund Assets shall be invested must have a minimum investment grade level rating of ‘BBB’ by at least one recognised Risk Rating Company.

Nigerian banks have been raising funds to meet the fresh capital thresholds set for them by the CBN. In March 2024, the CBN directed commercial banks with international authorisation to increase their capital base to N500bn and national banks to N200bn, while those with regional authorisation are expected to achieve a N50bn capital floor.

Similarly, non-interest banks with national and regional authorisations will need to increase their capital to N20bn and N10bn, respectively. CBN gave the banks a deadline of March 2026.

With less than a year to go before the expiration of the CBN deadline, other banks have started the second leg of their capital raise. During the first phase, a majority of them indicated that private placement, the debt market, and the international capital market were all avenues through which they could raise the required funds.

Already, the CBN Governor, Olayemi Cardoso, at the last meeting of the Monetary Policy Committee, revealed that eight banks have already crossed the hurdle.