Banks Groan Under TSA

Chris Uba

Basking  in euphoria of his  historic victory in the February 2015 presidential election , after three unsuccessful attempts to  rule Nigeria in civil capacity, President Muhammad Buhari  is determined to  make strong impression on Nigerians: to root out the culture of mindless corruption  and  profligacy  habit that  has gained  foothold on the country and replace it with prudency and frugality in the use of resources.

 

The former military leader believes strongly that corruption and profligacy among the country’s senior citizens are largely responsible for the potpourri of the socio-economic problems that have assailed Africa’s most populous country. And if these vices are not destroyed, they would continue to constitute a drag to the nation’s socioeconomic development and Nigeria will remain ‘fantastically corrupt’ before the international community to the detriment of its citizens. Therefore, he wants to use his seconding coming to power to accomplish this mission.

 

The sector that immediately came to focus in this campaign is the public sector organizations.  Given his experience as a public servant in the military government in the 1970s, and as head of state in the 1980s, President Buhari knows   how powerful the public sector is and how it has played stronger role in the horrifying corruption that now assails the country, hence its activities must be seriously checkmated if his anti-corruption campaign is to yield positive results—saving limping giant of Africa.

 

 The most effective way of doing this is to clip the wings of the government Ministries, Departments and Agencies (MDAs). Therefore, on September 2015, after just four months in office, the president issued an executive order directing all MDAs to operate a Treasury Single Account (TSA). The policy is in consonance with the provisions of sections 80 and 162 of the 1999 constitution.

 

Although TSA was introduced in 2012 by the Goodluck Jonathan Administration, it was operated as a pilot scheme to fine tune the process in order not to jeopardize other government businesses if it was fully implemented.

 

Thus, in compliance with the constitution, TSA is designed to consolidate all inflows from the MDAs by way of deposit into commercial banks, traceable into a single account at the Central Bank of Nigeria (CBN). It is, basically, a bank account 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 any given time.

 

President Buhari wants to reduce the proliferation of bank accounts operated by MDAs and to promote financial accountability among public sector organizations and thus help to check and mitigate corruption in the system. Although, the presidential directive was done with good intention, unfortunately, it has produced   some unintended consequences as the compliance of the policy faces challenges from majority of the MDAs.  

 

Critics said that TSA has trigger liquidity squeeze on the commercial banks and negatively influence a rise in interest rates, a development which they said has precipitated loss of  jobs while borrowing has dropped significantly. Some manufacturing industry operators who pleaded anonymity said it has not been easy for them.

 

The lenders have since the full implementation of the policy began, lost huge revenues and deposits that threatened the continued existence of many mid-tier banks. Banks are said to have lost over N2 trillion worth of deposit with full implementation of this policy. The banks had for years relied on cheap government deposits to post huge profits.

Confirming the pains of TSA on banks, last year, Mrs. Tokunbo Martins, CBN Director, Banking Supervision, agreed that the TSA regime precipitated some unintended consequences, affecting the operations of banks, especially regarding deposit depletion, asset quality, decrease in revenues and liquidity stress.

 

A  former senior official of  FirstBank Nigeria Limited, was reported to have said that “Banks have had significant reduction in their level of government’s deposits. It is not just because of the reduction in oil price, it is also because of the restructuring of the fiscal accounting, in which the TSA has been implemented.”

 

He added that the new system has almost moved away public accounts at the federal level from the vaults of commercial banks into the central bank which has reduced the liquidity in the financial sector.

 

Shortly after the presidential directive, Afrinvest Group, a Lagos-based financial investment house issued a statement arguing that: “Whilst the directive issued came as the first official statement by the Presidency on the TSA, the Nigerian National Petroleum Corporation (NNPC), had earlier begun withdrawing its funds from banks for retirement into the CBN. This had an impact on liquidity level in the banking system, resulting in a surge in money market rates during the period as banks scrambled for funds to cover their liquidity positions.

 

“With the TSA implementation now extended to all federal MDAs, the Nigerian banking industry, on an aggregate basis, would be affected in terms of deposits and funding cost structure.”

Global rating agency, Fitch has also sounded the alarm that Nigeria’s financial sector is likely going to experience turmoil.

 

The agency noted that the country’s banks are heading into financial and operational storms in view of what it called the increasingly difficult conditions under which they are operating. This it said is likely to result in a sharp deterioration in profitability, asset quality, liquidity and capital ratios.

In its report the Director, Financial Institutions, Mahin Dissanayake, Fitch Ratings said Nigerian banks are highly exposed to the domestic market and that the economic slowdown would affect their performance universities that secure foreign grants for research, and MDAs, which have to suffer delays in getting transactions, the TSA remains a nightmare.

 

Dr. Boniface Chizia, a monetary policy analyst and consultant, is calling on President Buhari to review the policy because it has already been overtaken by events. “It is actually a good policy because it ensures transparency and accountability in the system but it has been overtaken by events,” he said.  “It is not entirely new because Obasanjo started it and abandoned it. So, it is not new to this government. Because of the corruption that was rampant in the previous regime, it became necessary to introduce it again.  But, now, because of the economic depression in the country, there is need for the government to review the policy.

 

Chizia said “the economy should be reflated; you don’t lock-up money somewhere when there is a need for it. You don’t throw away the baby with bathwater. It is really affecting the banks. When you lock-up money somewhere, it is not yielding any interests.”

 

In what appeared to be an appraisal  of  the policy, the president  in March last year, said the that Federal Government had mopped up over N3 trillion as revenue accruals since the TSA policy began, meaning that it is yielding the desired result and that government will not be ready to review it anytime soon.

 

Every business organization operates within an external environment, meaning that its managers must have the capacity and necessary stimuli to adapt its operations to fluctuations from the environment to achieve corporate objectives. A manager is one who is able to use limited resource available to him to achieve corporate goals. That is what makes him or her astute. So, in a way, the TSA policy will serve as a litmus-test for managers of the commercial banks.

 

This is the perspective of Tilewa Adebajo, an investment banker and CEO of the CFG Advisory, who does not see anything wrong with TSA regime.

 

“Government just wants track all its revenues. That is what the policy is designed to accomplish. It is good because it will help to avoid corruption,” he said. “Government wants its money in a single account where it will be properly monitored and managed. So, it does not affect the economy.

 

Adebajo said TSA is not starving banks of money. Banks should go and source funds elsewhere.

“Whenever the Federal Government pays contractors, civil servants, it pays them through the banks. Banks still get the money. So, the idea that banks are being starved does not arise. They should go to these contractors to source funds.

 

Prof. Stephen Ocheni, a lecture in the Department of Public Sector Accounting of Kogi State University, Anyigba, shares Martins’ sentiment. At a workshop organized by the Office of Accountant General of the Federation (OAGF) and the World Bank in Abuja, last year, he was quoted as saying that the full implementation of the TSA policy will not be hurting banks if they organize their operations well like their counterparts in other parts of the world.

 

“It will only hurt establishments that purport and pretend to be banks but have failed to understand banking and do what bankers do elsewhere. It is an opportunity for banks to refocus on the original purposes for which they were set up to collect depositors’ funds, keep them safe; engage in intermediation to create wealth and jobs for the economy and in the process earn profit for themselves,” he told the Nation.