Pension funds cash pile worries regulators
Lewanika Timothy | Monday September 28, 2026 06:00
Both the Bank of Botswana (BoB), which regulates commercial banks, and the Non-Bank Financial Institutions Regulatory Authority (NBFIRA), which oversees retirement funds, believe more pension capital should move beyond bank deposits into longer-term investments.
The concern is not that pension funds or commercial banks should not hold cash, but that large institutional deposits have remained a persistent feature of the financial system even as billions of pula have been brought back into Botswana under Pension Fund Rule 2 (PFR2). Pension funds held P14 billion in cash as at June, compared with P23.3 billion invested in locally listed equities. Total industry assets stood at P176.4 billion during the period.
While the P14 billion represents nearly eight percent of total pension assets, regulators are concerned about the concentration of these balances in commercial banks and whether the capital is being deployed efficiently.
Commercial bank deposits in Botswana totalled approximately P114 billion as of June 2026.
Speaking during the investor pitso in Gaborone this week, BoB Deputy Governor Dr Kealeboga Masalila said the repatriation of pension funds had increased liquidity in the banking system, but a significant portion of the money continued to sit in banks as wholesale deposits.
“The bank’s concern is that too much money can sit in banks as large ‘wholesale’ deposits, particularly money coming from pension funds, instead of being deployed into longer-term investments,” Masalila said.
Unlike ordinary retail savings, wholesale deposits are large institutional balances that can move quickly between banks as fund managers search for higher returns. They can therefore be an expensive and volatile source of funding for banks, which must pay interest on the deposits regardless of whether the money has been converted into loans or other longer-term assets.
“The bank is not really saying banks shouldn’t hold cash, because obviously they need liquidity. The concern is more about funding and the gaps that exist,” Masalila said.
“You find that pension funds keep large balances in bank deposits, and banks in turn hold excess liquidity rather than converting it into longer-term securities. Capital is not being efficiently channelled into the economy as was the intention of repatriating pension funds into the country.” Masalila said
The concerns have placed greater scrutiny on PFR2, which requires pension funds to progressively increase their domestic investments from 30% of total assets to 50% by December 2027. The domestic investment threshold rose to 44% in December 2025 and is scheduled to reach 47% by the end of 2026.
However, money placed in local bank deposits qualifies as a domestic investment. Pension funds can therefore comply with the localisation requirement without necessarily directing the capital towards infrastructure, businesses, private equity, property, or other productive assets.
Masalila said the purpose of PFR2 was to support national development and unlock capital for long-term investment, rather than simply shift pension money from foreign markets into domestic cash holdings.
NBFIRA manager financial stability, Dr Kesaobaka Molebatsi, said a review of PFR2 could examine the thresholds governing how much pension capital may be allocated to different asset classes.
This could include reconsidering the amount that retirement funds are permitted to hold in cash and setting clearer allocation thresholds to encourage investment in longer-term assets.
The existing PFR2 framework permits local cash exposure of up to 20% of a pension fund’s total assets, alongside separate limits for listed equities, government debt, property and alternative investments.
Any tightening of the rules would have to balance the country’s need for development capital against pension funds’ responsibility to protect members’ savings.