Some analysts have said banks should be remunerated on the prevailing Cash Reserve Ratio (CRR) of 31 percent to partly alleviate the burden of their cost of funds. The call comes as the implementation of the Treasury Single Account (TSA) with Ministries Departments and Agencies (MDAs) commences today.
The issue dominated discussions at the last Monetary Policy Committee (MPC) meeting, where some of the members said banks should be remunerated on the CRR, which is a specified minimum fraction of the total deposits of customers, which banks have to hold in reserve, either in cash or as deposits with the Central Bank of Nigeria (CBN).
This is even as the analysts say the full implementation would relieve the CBN of the high interest expense it deploys in mopping up excess liquidity during the Open Market Operation (OMO) auctions, as it strives to maintain its primary objective of ensuring price stability.
But the CBN insisted yesterday that it has enough manpower to execute the new policy for which the deadline given by president Muhammadu Buhari expired yesterday.
“The implementation of the TSA is an ongoing process and the CBN was very well prepared from commencement. CBN can cope”, Mu’azu Ibrahim, Director, Corporate Communications said.
However, the analysts further argue that the TSA policy means 100 percent impact of CRR on private deposits, a development that would affect their liquidity with the attendant resort to interbank borrowing at a higher rate, particularly by some banks which are heavily dependent on public sector funds, in the course of the implementation of the policy.
With the average Cost to Income Ratio (CIR) at over 60 percent, based on the second half year financials of banks, they say implementing the policy in addition to the CRR still at 31 would impact negatively on lending, currently hovering between 25 and 28 percent.
Usoro Essien of Research dept, Greenwich Trust Limited, observed that “TSA should not pose systemic risk to the income streams of the sector as a whole. However, a few banks with greater exposure to public funds will likely be adversely affected.
Notwithstanding this assertion, the ratio of private sector to public sector deposits was 75% to 25% between January 2014 and February 2015.
“ In spite of the soft 0.8% month-on-month (MoM) increase in the absolute figure in March, the ratio shifted atypically to 91% and 9% in favour of private deposits. Also, we expect banks that will be need to change their business models to cater for the retail segment of the economy. This will also expand the country’s financial inclusion.”
As regards the CBN; since public deposit accounts will now be in their custody, it will relieve the apex bank from the high interest expense it uses in mopping up excess liquidity during OMO auctions as it strives to maintain its primary objective of ensuring price stability.“
Suleiman Barau, CBN deputy governor and member of the MPC, advised in his contributions that “The CRR should to be retained at 31 per cent, but a portion of it could be remunerated in order to free some funds for bank lending to the economy.”
Joseph Nnanna, also a member of MPC also agreed on the “Remuneration of DMBs’ accrued CRR at the rate of 3.0 per cent to lessen the negative impact of financial repression.”
John Omachonu
