- With N662.8bn pension funds loaned to banks, the regulatory agencies have to be alive to their responsibilities
According to a report, Nigerian banks borrowed N662.8bn from the Contributory Pension Scheme pool as of the end of May. The report should not, in normal circumstances, raise any eyebrows. Indeed, with pension funds currently in excess of N8.14trn, it seems somewhat inevitable that more and more of the ‘idle’ funds will be channelled to the banks for onward lending to the real sector. What is important is that the funds are safe and secured, and that their utilisation is made to comply with the guidelines as stipulated in the Pension Reform Act 2014.
Moreover, we note that the amount as a whole is a paltry 8.4 per cent of the total pension assets. In an economy where access to cheap, long term credit has remained a major headache; and one characterised by a notorious mismatch between the long-term credit needs of the real sector and the short-term deposits of the ordinary saver, the progression, which the development symbolises, would seem the natural order. We continue to long for the day when, beyond merely growing the pool, the financial services sector would be positioned to leverage on the huge pension assets to grow the economy. Truth is that we are not anywhere near there yet even if there is cause to hope that the pension funds, which by their nature, are of longer gestation, would continue to avail, incrementally, to service the credit needs of our budding real sector.
To be sure, the Pension Reforms Act of 2004 came with great expectations. Although specifically designed to tackle directly, the pension crisis at the roots, with the introduction of contributory scheme unlike the old scheme which was largely defined benefits, the expectation was that the huge pool from Retirement Savings
Accounts would, in addition to changing the tenor of lending, help to moderate the cost of funds. This is against the perennial complaints by the banks that their deposits were of short-term nature, hence not amenable to meaningful, long-term lending. However, while the scheme may have succeeded largely in tackling the pension crisis, particularly for those falling under the new scheme, the positive effects of the huge funds pooled under the scheme on the larger economy, remain to be seen.
The reasons are not far-fetched. First is that the Federal Government has not taken any conscious steps to optimise the benefits of the huge pension pool to the Nigerian economy. While there have been talks about utilising the funds in sundry areas like the real estate and infrastructure sectors, there have been little efforts to make it happen.
Second, the bizarre appetite under which the banks will rather lend to high-risk and high turnover businesses with guarantees of humongous returns can only translate to industrialists and other real sector players being shut out of badly needed credit. Little wonder that lenders continue to funnel available credit to the oil and gas sector despite the huge risks and the surge of non-performing loans. Worrisome as this may be, perhaps more troubling is the fact that our banks do not appear to have the needed discipline to make us go to sleep with our two eyes closed with so many people’s future literally in their hands. This is where the regulatory authorities have to come in to ensure that they operate according to the rule or face stiff sanctions.
Third, in an environment where basic infrastructure for doing business are not available; and where governments at all tiers, with their unbridled spending on unproductive ventures keeps fueling inflation, it certainly would take more than the availability of funds, no matter how long-term, to bring down the cost of investible funds.
Be that as it may, we see pension funds as an important source of development finance. Fourteen years into the operation of the new pension scheme, we certainly need a new thinking on the management of the funds that balances the interests of the fund owners/beneficiaries with the developmental needs of the country. Ours should no longer be like the proverbial dweller on the river bank washing his hands with spittle.
