Cost of Funds to Rise as FG Enforces TSA

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Cost of borrowing among commercial banks is expected to rise significantly as the federal government commences the full implementation of the treasury single account (TSA).

President Muhammadu Buhari last week ordered all federal ministries, departments and agencies (MDAs) to pay all government revenues and other receipts into a TSA with the Central Bank of Nigeria (CBN).

The move may also constrain banks’ full year results for 2015. The federal government said the move was aimed at promoting transparency and facilitating compliance with Sections 80 and 162 of the constitution.

The TSA is a unified structure of government bank accounts enabling consolidation and optimal utilisation of government cash resources. It is 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.
Agencies like the, Securities and Exchange Commission (SEC), Corporate Affairs Commission (CAC), Nigerian Ports Authority (NPA), Nigerian Communications Commission (NCC), Federal Airports Authority of Nigeria (FAAN), Nigerian Civil Aviation Authority (NCAA), Nigerian Maritime Administration and Safety Agency (NIMASA), Nigeria Deposit Insurance Corporation (NDIC), Nigeria Customs Service (NCS), Nigerian National Petroleum Corporation (NNPC), Federal Inland Revenue Service (FIRS) and Department of Petroleum Resources (DPR), among others, are affected by the directive.

Earlier in the year, the federal government had directed all its MDAs to close their revenue accounts with commercial banks. It also directed the MDAs to transfer the balances from the closed revenue accounts to a consolidated revenue fund of the federal government with a deadline of 28 February. In addition, the list of federal government parastatals affected has been increased and notably includes the Nigerian National Petroleum Corporation (NNPC).

According analysts at CSL Stockbrokers Limited, judging from the president’s fresh directive, and from comments from the CBN and commercial banks, it appeared that some MDAs did not comply with the 28 February deadline.
Data from the CBN on federal government deposits with banks showed that federal government’s deposits as a percentage of total deposits have been on the decline since the TSA began to be implemented in March.

At the end of June 2015, the banks had a total of N713 billion deposits from federal government agencies and N24.2 billion foreign currency deposits from federal government agencies, making a total of N736.8 billion.
“With an expanded list of federal government parastatals affected, we can safely assume that all federal government funds are set to leave the banks (both local and foreign currency). In our view, withdrawing N736.8 billion (4% of commercial banks’ total deposits) from deposit money banks implies a slight liquidity squeeze with its attendant effect on Interest Income and cost of funds,” CSL stockbrokers stated.

Head of Research at Sterling Capital Limited, Mr. Sewa Wusu, had explained that the policy will affect the flow of liquidity in the banking system. He however, supported the decision by the federal government to fully implement the TSA, saying it would bring about transparency and effective revenue management.

“The liquidity in the banking system will definitely be affected. This is because once the banks collect government’s funds, it will be sent directly to the TSA. The free funds some banks used to enjoy will no longer be there,” Wusu added.

Nonetheless, he stressed that the decision to fully enforce the policy would help to ensure the consolidation of government’s revenue. He argued that prior to the initiative, government funds in banks were fragmented, a system that gave room for corruption.

“But now that the TSA is to be fully implemented, it will help to block leakages and uncover idle cash. It will also allow complete and timely information of government cash,” he explained.

Meanwhile, the Nigerian Interbank Offered Rates (NIBOR) reduced to 14 per cent on Friday from 40 percent the preceding Friday, after injections of liquidity from matured treasury bills and refunds by the central bank of cash set aside by banks to buy dollars. The cost of borrowing among banks, jumped to as high as 70 per cent during the week on tight liquidity, after the central bank tightened liquidity to support the naira currency.

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