By Emeka Anaeto, Economy Editor
LAGOS — There were indications that public sector funds component of banks’ deposit base may have started to shrink, raising fears that it will affect the nation’s economy. This is as the overall cash inflow from the system in the month of August, so far, is about N440 billion compared to about N613 billion in the corresponding period of last month.
Though some bank treasurers are worried over the implementation of the Treasury Single Account (TSA) which will remove public sector funds from the banking system, they are still expecting inflow from Federation Account Allocation Committee (FAAC) at least from the states and some federal establishments this month.
According to the bank treasurers, though the funds are not coming in as in previous months, about N232 billion is being expected before
end of next week.
Analysing the market situation, a source at FSDH Merchant Bank said: “We expect that a total inflow of about N775.28bn will hit the money market from the various government maturing securities and Federation Account Allocation Committee (FAAC) in the month of August 2015”. According to the analysis, about N232 will be coming from FAAC inflows.
Banks’ treasurers, LCCI worry over Treasury Single Account
Expressing concern over the implementation of the TSA by the Federal Government, Mr. Wale Abe, Executive Secretary of Financial Markets Dealers Association (FMDA), the umbrella body of banks’ treasurers, said the policy would take a chunk of funds from banks, resulting in tighter liquidity and loss of float to banks.
He also indicated that there will be adjustments to banks’ pricing of their instruments which will ultimately affect lending.
But he also hopes there will be other policy measures to address any adverse effect of the full implementation of the TSA policy, adding that it will be difficult to appraise the full impact of the policy especially in a situation where the overall fiscal and economic policies of the government is yet to be articulated.
Director-General of Lagos Chamber of Commerce and Industry (LCCI), Mr Muda Yusuf, also expressed worries that the TSA would hamper the capacity of banks to give loans while spurring increase in interest rates.
He advised that the Central Bank of Nigeria (CBN) should reduce its Cash Reserve Ratio (CRR) to compensate for the adverse effect of TSA on the credit market.
With the directives by the Federal Government that all its ministries, departments and agencies (MDAs) should move their accounts to CBN’s TSA account, last weekend, Afrinvest Group, a Lagos-based financial investment house, said: “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 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”.
The statement added: “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”.
Data from the CBN as at end of June 2015 put total deposits (demand, time and savings) in the financial system at N13.5 trillion. Analysis of this shows that the private sector accounts for 90.7 per cent (N12.2trillion) of total deposits, while public sector funds accounts for 9.3 per cent (N1.3trillion) which will be lost to TSA.
But, though President Buhari’s directive would affect only Federal Government MDAs, states are also keying into the scheme with Kaduna and Lagos leading in the implementation deadline set for September 01, 2015. This would increase the total volume of funds outflow as a result of TSA implementation.
In relation to this, FBN Capital, an investment arm of First Bank of Nigeria Plc, stated in its money market reports last weekend that the NNPC withdrew about N400 billion from the banks last month, pushing Open Buy Back (OBB) and overnight interest rates to a record high of 50 per cent. It, however, stated that this pressure was corrected when FAAC inflow came to the banks within the same period.
In the implementation of the TSA, there will be no FAAC inflow to correct or compensate for the outflows.