Wednesday, August 10, 2022

NBFIRA, Pension fund managers tussle over P9.3 billion offshore investments

A new rule that could see investments worth several billions of Pula planted by local pension funds into the domestic economy following repatriation back from off-shore markets has sparked yet another bitter-war of words between the Non Banking Financial Institutions Regulatory Authority (NBFIRA) and leading industry players.

At stake are investments worth P9.3 billion that the regulator through the revised rule would force local pension funds to invest locally through a new set of rules.

The suggestion is however highly unwelcome by various pension funds, investigations carried out by Sunday Standard has found out.

Currently, pension Funds in Botswana are allowed to invest up to 70 percent of their assets offshore. Market figures shows that as at 31st December, 2012 offshore investments of Botswana pension funds was P23.9 billion or 50 percent of total pension assets.

At the same time, total equities accounted for 66.9 percent of the investment assets of retirement funds comprising of Botswana listed equities of P12.5 billion and offshore equities of P19.1 billion.

On the other hand, total bonds accounted for 21 percent of funds made up of Botswana Bonds of P6.5 billion and offshore bonds of P3.6 billion. Cash and near cash accounted for 10 percent of the funds comprising of P4.0 billion in Botswana Investments and P1.2 billion in offshore investments.

Under the revised Pension Prudential investment rules, local pension funds will be limited to have an exposure of up 30 percent in foreign shares. However the industry is said to be proposing a limit of at least 50 percent as they believe that the weighting is too low.

Currently investment offshore equities have been set at 49 percent of industry assets.

Sunday Standard has it on good authority that apart from the rules governing foreign shares, NBFIRA has also revised rules governing investments in local and foreign bonds, credit balances as well as cash in hand.
The rules point out that pension funds will be expected to have 15 percent across the banks, 15 percent per building society as well as 10 percent with other deposit taking institutions.

“This is meant to avoid concentration risk,” the authority is said to have told pension funds and asset managing firms.

However, the Botswana Pension Society, which represents most pension funds, is believed to be in total disagreement with this rule as they argue that it “is too restrictive and will result in excessive investment in small scale banks which are more risky”.

Furthermore pension funds have been subjected to a limit of 20 percent on domestic corporate bonds, with a precise maximum of 5 percent on unlisted bonds. The proposal hugely differs with the 50 percent suggested by the Botswana Pension funds to the authority.

Meanwhile sources within the industry told Sunday Standard this week that, “NBFIRA will not take the hard-line. It will not enforce these rules as yet because they are toothless”.

Section 50 of the NBFIRA Act empowers The Regulatory Authority to make and publish rules that prove to be a significant contributor in preventing or minimising financial sector risks.

Information gathered by this publication however suggests that the new rules were approved by the authority’s board of directors late last year with compliance date set for July this year.

This leaves pension funds with less than five months to repatriate the close to P10 billion of investments back into Botswana should the authority decided to go ahead with the rules.

The approval followed a circular that NBFIRA sent to all pension funds and assets managing firms informing them about the revised rules. The circular stated all the limits on assets that are to be held by a pension fund as set out under the Pension Prudential rules.

Key amongst the rules, which pension funds are also opposing its appointment of risk officers and compliance officer, which the authority says is for ‘risk based supervision’ purposes.

It said that most pension funds which are against the rule do so mainly on account that, “it will be costly.”

They also point out the new rules will have a direct negative impact on pensioners as they will be subjected to lower benefits at retirement.

The authority has in the past been accused of lack of proper research before introduction of any regulation as well as general consultation with the industry.

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