Interest Rate: Pension Fund investment in FG securities up 16.5% to N9.9 trn

Pension Fund investment in Federal Government debt instruments (securities) rose 16.5 per cent, year-on-year to N9.9 trillion in February caused by the high interest rate regime prompted by the inflation fighting measures of the Central Bank of Nigeria, CBN.

Since June last year, the CBN, has raised the Monetary Policy Rate, MPR, five times and by 650 basis points to 18 per cent in a bid to curtail steady rise in the inflation rate to 21.9 per cent in February.

The MPR is the benchmark for determining the interest rate charged by banks and also influences the yields on fixed income securities.

The hike in MPR prompted a general rise in interest rates with yields on one month deposits rising to 7.56 per cent in February from 3.57 per cent in May last year. Similarly, the interest rate on the Federal Government’s 3-years Savings Bonds rose to 11.04 per cent in February from 8.93 per cent in May last year.

In a bid to take advantage of this development, Pension Funds increased investment in government debt instruments or securities by 16.5 per cent year-on-year to N9.9 trillion in February from N8.5 trillion in February 2022.

The Federal Government securities include FGN Bonds, Treasury Bills, Agency Bonds, Sukuk, and Green Bonds.

The latest data from the Nigeria Pension Commission, PenCom, showed a steady rise in pension fund investment in FG securities since the first quarter, Q1’22, when it fell quarter-on-quarter, QoQ by 3.1 per cent.

In Q2 ‘22 pension fund investment increased to N9.007 trillion representing QoQ growth of 5.9 per cent; in Q3’22 the investment value increased further by 2.1 per cent QoQ to N9.192 trillion while in Q4’22 the investment value rose QoQ by 2.7% to N9.644 trillion.

Though pension fund investment in government securities fell marginally by 1.0 per cent, month-on-month, MoM, it however rose by 4.2 per cent, MoM to N9.8 trillion in February.

Analysts Comments

Commenting on this development, analyst and Head of Investment and Research at Fidelity Securities Limited, FSL, Mr Victor Chiazor, said: “The rise in PFAs’ investments in Federal Government securities over the last one year was triggered by the high interest rate regime following the increase of the MPR by the CBN to tame rising inflation.

“We expect PFAs investment in Federal Government securities in the first quarter of the year to continue to grow but investments in equities will be based on the yield environment, performance of the equities market during the year and the post political dynamics in the year.”

In his own part, analyst and Managing Director/CEO of APT Securities and Funds Limited, Mallam Garba Kurfi, said: “The Investment in FGN Bonds by PFAs is necessary because of its availability and risk free when compared with the other securities. “Most aged people prefer their money to be invested in less risky assets; more than N7.9 trillion in the Nigerian financial market were invested into bonds. There are no available instruments to invest like bonds with high interest rates.

“There is a need for more financial products that can give alternatives and provide high returns like Bonds in the financial markets in order to attract pension funds investments.”