Treasury Single Account Implementation Puts Banks in Dire Strait • Interest rates to Rise, Pressure on Banks’ Staff for Deposit to Heighten

The idea of the Treasury Single account (TSA) was given birth to by the Federal Government and directed its agencies to adapt the new model. That alone sent shivers down the spine of banks. But with Lagos state joining the Federal Government, and the probability that the All Progressive Congress (APC) states may join has made the banks to begin to gasp for breath.
For clarity of the new account, a TSA is a unified structure of government bank accounts or a set of linked bank accounts through which the government transacts all its receipts and payments and gets a consolidated view of its cash position at all times.
This new accounting system ends the previous public accounting system of several fragmented accounts for government revenues, incomes and receipts.
With this new development, analysts are diverse in their analysis of probable impact on banks. But one thing is clear, the implementation will reduce the amount of deposits in banks’ vault.
When the Federal Government announced it, some financial analysts quickly put a figure to it that the banks’ deposit vault will be depleted to the tune of about N2 trillion.
But the amount could bourgeon with Lagos state joining in, with the possibility of other APC states joining the fray soon.
Wale Abe, chief executive officer of Financial Market Dealers Association of Nigeria (FMDA) is convinced that the implementation of TSA will lead to increase in both lending and deposit rates.
Abe explained that when fully implemented, the banks’ lending capacity will diminish as lendable funds would have depleted.
According to him, at the end, the pressure will be directed to banks’ staff. He explained that various banks will soon put pressure on their staff to mobilize for deposit, with new set target to meet.
He said, in the process, the banks will add some incentives in form of increased deposit rates to lure more deposit, thus increase deposit rate, and indirectly increase lending rates as well.
But Ayo Teriba, chief executive of Economic Associates think otherwise. “I do not believe this will affect banks negatively. You are talking of not really a single account. You are talking of a family of accounts, consolidated into one, controlled centrally from the treasury. I presumed, much of the funds will still remain with the banks but will be monitored centrally and if the treasury decides to place funds with the banks, it will be centrally co-ordinated. Banks should not panic about this. It does not mean all Federal Government money will go to the CBN. Banks will still subscribe to government’s treasury bills. It will make sense that government’s funds still be kept in Nigerian banks”, he reportedly said last week.
Razia Khan, Managing Director, Head – Africa Macro and Global Research, Standard Chartered Bank, said, “the directive on the TSA is an excellent step to ensure more transparency in government finances (it should be clearer what each agency is earning), and also to reduce the amount that government needs to borrow overall. Of course, this alone cannot compensate for weaker oil revenue, nor will it compensate for the arrears that will have to be paid, somehow. So while government borrowing will still rise, at least public finances will not be as pressured as they might have been in the absence of a TSA.”
She however believed that the implementation will re-direct monies from the banks, but cautioned the central bank not to be in a hurry to relax its grip on Cash Reserve Ratio (CRR). “For monetary policy, it raises some interesting questions. Does the harmonised CRR need to be as high as it is, if many more public sector liabilities are removed from the banking system? The CBN will likely need to monitor compliance with the directive, before any changes could be made, easing the pressures on banking sector liquidity,” she said.

On how the policy will affect banks, head of strategy, BGL Plc, Olufemi Ademola, explained that the banks have been accused of not carrying on the proper business of banking but are involved in “cash round-tripping” by taking funds from the government and using the same funds to invest in government bonds and treasury bills, thus making huge returns without risking their capital.
“With the implementation of the TSA, banks will need to conduct proper financial intermediation and find innovative ways to improve liquidity and returns. It would be tough at the initial stage but with time, they will adjust, easing the pressures on banking sector liquidity.”
Benefits of TSA
*TSA will promote transparency and facilitate compliance with sections 80 and 162 of the 1999 Constitution of the Federal Republic of Nigeria.
*With TSA all receipts due to government or its agencies will be paid into TSA resident in Central Bank of Nigeria [CBN].
*Since TSA is a unified structure of government bank accounts, it enables consolidation and optimal utilization of government’s cash resources.
*TSA provides a consolidated view of government’s cash position always.
*The CBN, SEC, CAC and NPA, NCC as well as FAAN and NCAA, NIMASA, NDIC, NSC, NNPC, FIRS, NCS, MMSD, DPR and other government agencies will implement TSA.
*When linked to TSA, the accounting system will be configured to allow the agencies access to funds based on their approved budgetary provisions.
*The implementation of TSA brings transparency, efficiently and accountability.
*TSA is part of the public financial management reforms under pillar three of the National Strategy for Public Service Reforms towards vision 20:2020.
*TSA addresses impediments to effective and efficient cash management.
*TSA ends problems of fragmented banking, which affected government’s ability to undertake efficient cash planning and management as required by the Fiscal Responsibility Act.
*With TSA, government can track its expenditure in a timely manner.
*TSA makes it possible for flexible operations, contrary to past regime where officers must get to their desks before effecting transactions.
*TSA enables online real time transactions. Meaning, payment can be made from any point in the world.
*TSA instills fiscal discipline and prudence as over 1,000 dormant or idle accounts will remain shut.
With TSA, the average monthly overdrafts with the CBN fell from the overdrawn amount of N102 billion in December 2011 to N4.461 billion credit in September 2012 with 93 MDAs out of over 400.

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