- Buhari’s directive ill-conceived – Experts
- Fear job loss, high interest rates
Although mixed reactions yesterday trailed President Muhammadu Buhari’s directive on Sunday that revenue-generating Ministries, Departments and Agencies, MDAs, should pay monies accruing to their coffers into Treasury Single Account, TSA, domiciled in the Central Bank of Nigeria, CBN, most speakers feared that the policy could lead to another round of banks’ failure.
In separate interviews with Nigerian Pilot, the contributors asserted that the operations of money deposit banks would be severely hampered by the looming financial crunch induced by the recent Federal Government’s directive.
The policy, the analysts said, would adversely affect the banking industry, a development that might lead to liquidity squeeze and job cut.
Many banks, they reasoned may not be able to mobilise sufficient deposits any longer for on lending to the real sector of the economy that is currently groaning due to paucity of funds.
Nigerian Pilot had exclusively reported yesterday that the MDAs’ withdrawal of their accounts from the banks would lead to N60billion leaving their vaults at a go.
Senior Consultant at Capital Alliance Limited, Steve Orekoya, said if the Federal Government implements the policy of MDAs paying into TSA, all their revenues, incomes and other receipts, it will affect the banking industry and a lot of Nigerians will lose their jobs.
According to him, the country’s labour market has taken a major hit with worsening unemployment recorded in the second quarter (Q2) of 2015.
About 1, 317,700 Nigerians lost their jobs within the period, and the number of the underemployed will increase significantly with the new directive.
‘TSA reform is counterproductive’
The Director-General, Enugu Chamber of Commerce, Industry, Mines and Agriculture, Mr. Emeka Okeke, said: “My position and humble comment is clear, just for business and economy to grow in Nigeria that policy must be counterproductive. The Federal Government is talking about one single treasury deposit for all the MDAs, the idea is good to stem corruption but I don’t think it is the best approach.
“Yes, it will squeeze the utility flow the more, in that banks will no longer perform one of their major roles which is to provide funds for businesses to grow. The present regime of interest is between 21 percent to 25 percent, and is sustainable in the bank, not just about the policy of interest rate.
“It will further worsen the situation that for you to get funds from a bank to do a business, you might be paying up to 30 percent interest because the funds are not there. The public sector consumes not less than 80 percent cash flow in the country.
“So if you have to deposit all public sector money with CBN, it is a problem because the banks will be forced to borrow from CBN and it will add up to the cost of funds at the end of the day.
“So for me, it is a counterproductive measure even if it is aimed at strengthening the naira. But CBN needs to weigh all the options because this one will not fly; it will cost the economy more, even presently the new administration is yet to make out a policy plan.
“With the apprehension in the economic state of the country, this present policy will not make things work; in fact, the fear is being expressed that if we don’t take time, the whole of this thing will go without the economy growing any more instead the economy will be at a standstill and will be losing value that would have benefited the common man.
“Since there will be paucity of funds in commercial banks, it is likely there will be another era of banks collapse. Of course, that is part of the fear if the banks cannot have liquidity to sustain their operations, then it means that most banks might likely go under. If this policy is meant to last for a long run, even in a short while it will hurt the banking sector, the economy and there will be no money available for businesses to access in terms of credit to expand the capacity of their industry.”
Another industry analyst, who opted for anonymity, posits that the challenge posed by the TSA directive is not compliance, but how much government agencies are willing to receipt/transfer to the TSA as income-generated.
He said: “To assume that because the Federal Government of Nigeria has streamlined payments into a singular account at the CBN could be fraught with negative consequences, including retrenchment of existing workers in commercial banks, is laced with factual inaccuracy. It is tantamount to concluding that in the absence of government patronage commercial banks will cease to exist. Commercial banks like other businesses are established to generate profit.”
The TSA, he added is pruned to hack attacks, aside from the fear of mass retrenchments in banks. “My checks show that the introduction of single TSA with the CBN will make Nigeria susceptible to hack attacks,” he stated.
There has also been fears that the CBN may be handicapped in handling the volume of businesses, which are likely to increase as a result of the policy.
When the policy comes into effect, all receipts by MDAs will be made directly to the Consolidated Revenue Fund at the CBN, through an electronic channel process known as e-Collection. The TSA translates to a significant decline in banks’ deposit, as these are monies that are being kept with the banks.
Consequently, banks burdened with regulatory headwinds that are impacting negatively on their income are considering hike in rates of existing facilities.
The recent hike in monetary policy measures typified by increasing Cash Reserve Ratio, CRR on private sector deposit from 15 percent to 20 percent, Monetary Policy Rate, MPR, anchored rate at which the CBN lends money to banks, from 12 to 13 percent and devaluation of the currency, among others, made banks to embark on upward review of facilities from 23 to 26 percent.
The implication, according to some analysts, is that current moves may further impoverish consumers whose purchasing power has been eroded by delayed payment of monthly salaries and in some cases half salaries to staff of local government staff in some states of the federation.
Consequently, lenders will be affected by the TSA directive, as this effectively raises to 100 percent, the proportion of public sector funds sterilised with the CBN.
“All banks are reviewing interest rates up on existing loans,” one bank official at a mid-tier lender explained.
“The banks recently had a meeting with the CBN and decided on that action,” he said.
Some banks are increasing deposit rates to attract idle funds and adopting aggressive tactics to lure customers to open accounts in a country where 67 percent of the adult population are unbanked.
“There is pressure generally, our targets have been raised to N1billion a week,” one marketer in a second-generation bank explained on grounds of anonymity.
“Africa’s largest economy faces a real battle of getting revenue collecting agencies to remit accurately and timely, what is generated on its behalf into the Federation Account, thereby compounding a problem of revenue shortfall already battered by declining oil prices.
“However, the banks already have very low exposure to public sector deposit, as cash reserve requirements (CRR) on public sector deposits stand at 75 percent,” Kayode Omosebi, an analyst at United Capital Plc, said.
The CBN raised public sector CRR-the minimum cash, as a percentage of customer deposits that each bank must set aside as a reserve – to 75 percent from 50 percent in January 2014.
It’s a welcomed development, says NSE member
However, the Managing Director and Chief Executive Officer, Cowry Asset Management Limited, a member of the Nigerian Stock Exchange, Mr. Johnson Chukwu, said it is a welcome development.
According to him, it will bring sanity to the current administration, as the presidential directive would end the previous public accounting situation of several fragmented accounts for public revenues, incomes and receipts, which in the recent past meant loss or leakages of legitimate income meant for the Federation Account.
Nigerian Pilot estimates that N2.6trillion of public sector funds are now being sterilised with the CBN, which reduces the lending creation power of commercial banks which are left with a shallower deposit base to contend for.
The policy could also help reduce the need for government to borrow, by issuing bonds which are mostly subscribed by banks, when the government’s idle funds already exist in same banks.
“I think the impact of the kick-off of the TSA reform will be mildly felt by the banks, as the banks have little chunks of this money to play with as we speak,” Omosebi said.
TUC hails presidential directive
In its reaction, the Trade Union Congress, TUC, expressed support for the presidential directive that the MDAs should pay all their money to a single account, stressing that Nigerians will benefit from the policy.
The union demanded that states of the federation be either advised or compelled by the Federal Government to implement the policy because it would promote transparency and accountability of financial dealings in the system
In an exclusive interview with Nigerian Pilot yesterday, TUC President, Comrade Bala Bobboi Kaigama, said: “This will ensure that the days of untraceable funds are over. This policy, we believe, gives a clear address to all the monies of the government, so that we can know where and who they are coming from.”
He said the TUC is in support of the programme because it would promote financial discipline, accountability and block all the leakages used to launder money by politicians.
Kaigama disagreed with the claims that the policy, which will result to the sudden withdrawal of over N60billion from the commercial banks, which will put pressure on their lending ability and job loss.
“These monies, in the first place, belong to the government, so the withdrawal of these monies will not result in any shake-up in the capital base of these banks. They (banks) have several ways of doing business to make money. We can’t be robbing Peter to pay Paul.
“Remember that the Central Bank Governor, Mr. Godwin Emefiele, is a banker and we have other comrades in the congress who are experts in financial management. So if the policy will result in job cut/loss, they would have dropped the policy and labour movement in Nigeria would have also rejected it,” he said.