Cash Shortage Hits Banks As TSA Deadline Expires

Cash Shortage Hits Banks As TSA Deadline Expires
Central Bank of Nigeria

Deposit Money Banks in the country have transferred about N1.5tn from the accounts of Ministries, Departments and Agencies of the Federal Government to the Central Bank of Nigeria as the deadline for the commencement of the Treasury Single Account policy expires yesterday (Tuesday),.

Top bank executives said a huge chunk of the amount left the MDAs’ accounts in the commercial banks for the CBN on Monday.

It was gathered that some of the eight Systemically Important Banks moved about N70bn on the average to the MDAs’ accounts in the CBN on Monday.

The development made the Nigeria Interbank Offer Rate (the rate at which banks borrowed from one another) to jump to about 80 per cent in the early hours of Tuesday before the banks stopped to submit quotes. The rate was five per cent on Monday

Top bank executives told our correspondent that massive cash shortage was already apparent in some of the banks, a development that was forcing the lenders to take to the CBN window where they could borrow funds at above 13 per cent interest rate.

A top official at the Treasury department of a Systemically Important Bank told our correspondent, “Banks are rushing to the CBN lending window to borrow money to cover their position. Many banks discovered on Tuesday that the amount of funds left with them after complying with the directive on the Treasury Single Account is not sufficient to meet their financial obligations.

“Many lenders have to rush to the CBN window to borrow at above 13 per cent on Tuesday. This was after the NIBOR window had already been frozen.”

President Muhammadu Buhari had ordered that all government revenues be paid into the Treasury Single Account from Tuesday as part of a drive to fight corruption and aid transparency.

Analysts have predicted that implementation of the policy will drain naira liquidity from the banks.

Economist and Chief Executive Officer, Financial Derivatives Company Limited, Mr. Bismarck Rewane, estimated that about 10 per cent of the banking sector deposits was expected to leave the system for the CBN account as a result of the directive.

“About N1.2tn, or 10 per cent of the banking sector deposits is expected to be transferred to the government account with the central bank in the course of implementing the TSA policy,” Rewane told Reuters on Tuesday.

“We expect an initial paralysis in the market and a disruption of operations of some of the banks, but they will overcome that,” he added.

The economist said the central bank could reduce the size of the Cash Reserve Requirement that the banks were expected to keep with it and inject some liquidity into the banking system to minimise the impact of the new account policy.

The CRR, which is the amount the central bank requires banks to set aside, is currently 31 per cent for both public and private sector deposits

An analyst at Ecobank Nigeria, Mr. Kunle Ezun, said the resultant liquidity challenges in the banking system might make the CBN to postpone a planned mop of liquidity though the CRR this week to next week.

According to him, banks have no alternative but to comply with the directive, saying it is in the best interest of the country in the long run.

“The impact on individual bank’s liquidity will differ from one bank to another, depending on their exposure to public sector funds or deposits. But every bank will have to manage the situation,” Ezun added.

The Financial Times quoted analysts as warning that the rapid outflows from the banking system following the implementation of the TSA would worsen a looming credit crunch facing the financial sector, one of the chief concerns cited by JPMorgan last week when it yanked Nigeria from its influential emerging bonds index.

“If that happens in one day, clearly what you’re going to see is significant shock in the system where there is a serious lack of liquidity and interest rates, which are already very high, will go even higher,” FT quoted an executive of one of Nigeria’s larger commercial banks.

“There is very little lending going on in the system and in this type of interest rate environment, the economy is starved of credit and this affects the ability of companies to invest,” he added.

Several bankers in Lagos said the minimum amount that would have to be transferred by the banks holding government funds was N1.3tn, or roughly $6.5bn.

The CBN Governor, Mr. Godwin Emefiele, concurred with that estimate, saying the amount “could be something” like 10 per cent of the N12tn to N13tn in the banking system, FT reported.

“The amount involved is very substantial and this will further tighten liquidity,” the Chief Executive Officer, United Bank for Africa, Mr. Phillips Oduoza, said.

Oduoza added that the total amount that banks such as UBA would be required to transfer was not yet clear, saying, “Initially, we were told it has to do with the government agencies that actually generate revenue; but now, we are hearing it will involve all the accounts maintained by various government entities with the banks — not just revenue accounts.”

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