The Nigerian central bank’s directive that the country’s lenders must have a minimum 65% loan-to-deposit ratio by March will be credit negative as the banks are pushed towards making riskier loans, Moody’s said on 13 January. Loans will need to grow by about 5% from the end of October to meet the new rules, Moody’s says.

Pension funds cannot place money with banks rated below investment grade, meaning that pension assets are concentrated in 10 or 11 banks, says Wale Okunrinboye, an investment analyst at Sigma Pensions in Lagos. Neither can the pension funds invest in banks that do not pay dividends, while investing in foreign assets requires an “almost presidential level of approval”.

With a working age population estimated at over 100 million, the number of Nigerians in pension schemes is just 8.79 million, according to the second-quarter report published by Nigeria’s National Pension Commission in August. But according to the OECD, only the Dominican Republic, Egypt and India have similarly restrictive rules on foreign investment by pension schemes.

Direct investment in real estate by Nigerian pension funds is also not allowed. The result of these restrictions is to “shrink the investment universe” even as the pension industry expands, Okunrinboye says. The pension commission report shows that about 70% of pension fund assets were invested in government securities. The value of investments in domestic equities fell 9% quarter-on-quarter as stock market prices dropped.

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