The National Pension Commission (PenCom) has issued a warning to Pension Fund Administrators (PFAs), prohibiting them from investing pension funds in the Additional Tier-1 (AT1) capital instruments of Deposit Money Banks.

In a circular signed by A.M. Saleem, Director of the Surveillance Department, PenCom emphasized that AT1 instruments do not qualify as permissible assets under the existing pension fund investment regulations.

According to the Commission, it has received numerous investment requests from PFAs looking to channel pension assets into these instruments. However, AT1 capital—as defined by Central Bank of Nigeria (CBN) regulations—is perpetual in nature, with no maturity date and no incentives for redemption.

PenCom pointed out that this characteristic contradicts Section 2.4 of the Regulations on Investment of Pension Fund Assets, which stipulates that pension funds must not be invested in instruments that carry any form of restriction or limitation on their sale or purchase, except for certain specified fund types.

“In light of the above, PFAs are not permitted to invest pension fund assets in Additional Tier-1 capital instruments issued by Deposit Money Banks,” the Commission stated.

PenCom’s investment guidelines provide a clear framework for acceptable asset classes, including bonds issued by the Federal Government, state governments, or the CBN; Nigerian Treasury Bills and CBN certificates; public limited company shares; bank deposits and financial instruments such as bankers’ acceptances and certificates of deposit; asset-backed securities; and investment certificates from close-end or hybrid funds.

Crucially, all investment instruments must carry a minimum investment-grade rating of ‘BBB’ from at least one recognized risk-rating agency.

This development comes amid ongoing efforts by Nigerian banks to meet the new capital requirements introduced by the CBN. In March 2024, the apex bank mandated that commercial banks with international licenses raise their capital base to ₦500 billion, while national and regional banks must meet ₦200 billion and ₦50 billion respectively.

Non-interest banks were also given new thresholds—₦20 billion for national authorization and ₦10 billion for regional. The deadline for compliance is March 2026.

With less than a year remaining, several banks have entered a second phase of capital raising. Many institutions initially explored private placements, debt instruments, and foreign capital markets to meet the requirements.

CBN Governor Olayemi Cardoso recently disclosed during the Monetary Policy Committee meeting that eight banks have already surpassed the capital benchmark.