Mass Sack Looms In Banks, As TSA Implementation Takes Full Force

CBN Governor, Emefiele
CBN Governor, Emefiele
Deposit money banks in the country may soon face liquidity challenges in their operations, as the federal government’s Treasury Single Account (TSA) implementation take full force, Daily Trust on Sunday can reveal.

This is even as financial experts have predicted that the implementation of the TSA may lead to mass sack in the banking sector.

President Muhammadu Buhari gave the order for the immediate commencement of the policy early this month. The directive was backed by a circular from the Head of the Civil Service of the Federation (HoS), Barrister Danladi Kifasi, which provided the details of the account, domiciled at the Central Bank of Nigeria (CBN).
The circular also listed the Ministries, Departments and Agencies (MDAs) that are affected by the directive and ordered them to follow the implementation strategy, including paying their revenues into the TSA, except union dues.
Many bankers and economic analysts believe that the policy will not go down well with the banks because majority of them rely on the public sector funds for their daily transactions.
For instance, the about N3 trillion public sector funds in the system will now leave the banking system to CBN. This, experts, highlighted will surely create liquidity issues in the banks.
Before now, the banks mostly depend on the public sector fund. The last Monetary Policy Committee pegged the Cash Reserve Ratio (CRR) of public funds at 31 percent.
Dr Kelekume Ikechukwu, an economist with Pan Atlantic University, Lagos said the implication for the commercial banks would be grave.
“Most commercial banks will go down. The ones that will survive are those whose businesses are not based on government funds,” he said, adding, “It is huge, the ones that will be affected are definitely going to downsize.”
Kelekume cautioned that the banks can no longer seat back and continue to do business the way they were used to. Noting that they need to begin to look at untapped sectors of the economy, the development economist said: “Because these banks have been getting easy money, they are not lending to the sectors they are supposed to lend to.”
Some bankers told Daily Trust on Sunday that the TSA was going to push up the cost of borrowing due to shortage of fund in the system, translating to lower investments in other sectors of the economy.
Andrew Ayabam, of First City Monument Bank (FCMB) and one time chairman of Benue State Internal Revenue Service (BIRS), said the policy has its good and bad sides. It’s good, according to him, because it will make the banks sit up and chase local businesses that will grow their earnings and impact positively on the economy.
He also noted that the policy is bad because it would affect the business relationships between states and government agencies.
“Some took loans, thus servicing these loans when the accounts are off may be difficult as the banks may not have access to the funds. Some of the banks usually make deductions at source but that won’t happen again and those agencies may not willingly service the debts. But for now, it’s unclear how the CBN would manage these relationships,” he said.
Mr Manz Denga, a former Managing Director of Transnational Corporation (Transcorp) and former regional managing director of UBA, East Africa, explained that the background of TSA was the total abuse of the funds for personal gains by banks and government officials.
MR Denga, who is currently the chairman of AfriBusiness ExpertEase (AfBEE) in Johannesburg, South Africa, added that there would be illiquidity in the system that would increase the cost of funds and lending rate. Interbank rates that have been up to 50 percent in the last few days may hit the roof, as obligors borrowing rates would also triple, according to him.
“The central bank needs to put aside bailout plans for the vulnerable banks, including direct market intervention. Traditionally, pooling is used to get higher returns on interest rates, reduce borrowing costs, and build confidence in lenders.” he said.
He suggested that to overcome this, the CBN should consider using the advised account only as a control account, while it opens subsidiary accounts for all individual MDAs, both for performance review and funds administration
He said, “A good move but needs careful implementation, to avoid systemic backlash or collapse. This, especially with the open wound of refusing dollar cash deposits.
“TSA at CBN is not a good business decision, as it shaves off potential income on the line of RFI or Reserve for International Interest. For instance, if a state has 100m with a bank for a year, it earns interest as negotiated, in addition to being entitled to return of the principal, as well as collateralizing the deposit to borrow a billion or more, he explained .
“I will say that if 30 states including Lagos do a TSA at CBN, banks would collapse, again, with the dollar cash deposits ban. Lastly, on the question of blocking leakages, the ultimate silver bullet is in the operatives. My over two decades experience here and abroad tells me that once collusion enters the room, the best of plugs give way.”
Moses Azege, a ‘former banker and Economic analyst’ said if CBN holds the account then that will amount to the same impact as if the CRR for Public sector deposit is 100%. “Also, the banks balance sheet will shrinks in line with liability outflows to CBN and the corresponding credit asset constriction,” he said, adding, “However, if a single commercial warehouses government funds, your guess is as good as mine on how it will unfairly benefit vis-a-viz other commercial banks.

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