Flight Out of NTBs by the PFAs


Friday, June 05, 2020 / 09:20 AM / By FBNQuest Research / Header Image Credit: FBNQuest


We learn from Pencom's latest report that the assets under management (AUM) of the regulated pension industry in Nigeria increased by 16.0% y/y in April to N10.58trn (US$27.3bn), and by 2.4% m/m. The share of equities in AUM peaked at 16% in 2007, ie before the blowout on the NSE. It now stands below 5%. The equities market took further batterings in 2018 and 2019. There has been a recovery of sorts since mid-May although it seems that the main driver has been the reinvestment of sale proceeds that offshore players have been waiting to repatriate.

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The PFAs' holdings of FGN paper stood at 66.3% of AUM in April, little changed on the month. The story to tell, however, has been the fall in the share of NTBs by 209bps m/m and by 1,080bps y/y.


This followed the crashing of yields on NTBs in response to CBN circulars in October that barred domestic non-bank players (notably the PFAs) from its open market operations (OMO). As their bills issued within OMO mature, fund managers obviously have to make alternative investments. Initially they favoured the NTBs: those yields buckled.


FGN bonds still offer double-digit returns (other than the shortest maturities). The Debt Management Office (DMO) now has a domestic funding target of N1.59trn because of the reallocation of earlier authorized external borrowing. The CBN has boosted market liquidity by reducing its sales of OMO bills, and the DMO enjoyed a highly successful auction of FGN bonds in May with a total bid well above N400bn. That said, the doubling of FGN bond supply this year will surely feed into higher borrowing costs.


AUM of PFAs, Apr 2020 (% shares)


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Sources: National Pension Commission (Pencom); FBNQuest Capital Research



The loss of NTBs has been the gain of the domestic money market, the share of which has risen from 10.4% of AUM to 15.8% in 12 months, increasing by N720bn. Bank placements have driven this strong growth.

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