Nigerian banks are beginning to look for new sources of deposits and means of boosting profits, as the Treasury Single Account (TSA) implementation looms.
With the new TSA platform expected to take effect next week Monday, all receipts by MDAs will now 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), anchore 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 told BusinessDay.
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“The banks recently had a meeting with the CBN and decided on that action,” he said.
A letter to a customer from one of the banks seen by BusinessDay, shows average interest on loans up by 3 percent or 300 basis points.
“The increase is aligned to current money market realities,” the bank said.
The office of the Accountant-General of the Federation said in January, that all Federal Ministries Departments and Agencies (MDAs) yet to embrace the TSA, have till Friday February 28 to close operated revenue accounts with commercial banks and transfer to accounts managed by the CBN.
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 is unbanked.
“There is pressure generally, our targets have been raised to N1 billion a week,” one marketer in a second-generation bank told BusinessDay 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.
A year before that, the apex bank had identified implementing the TSA as a fiscal strategy that would support its inflation-targeting policies at the time.
BusinessDay estimates that N2.6 trillion 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 CBNs CRR policy has effectively kept N460 billion of First Bank’s funds at the apex bank, earning zero interest rates, instead of being available for lending,” said Stephen Onasanya, Chief Executive Officer, First Bank of Nigeria, at a Conference in Lagos last year.
The TSA directive is also in keeping with the promise on December 17, 2014 by Ngozi Okonjo Iweala, the Coordinating Minister for the Economy and Minister of Finance, that government would block all leakage as part of measures to shore up the revenue shortfall caused by declining oil prices.
It 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.
Returns in Nigeria, Africa’s largest economy, are driven by net interest margins, which will be further crimped by the TSA directive.
The Nigerian Stock Exchange Banking Index, which tracks the nation’s biggest banks, has lost -11.76 percent this year (February 20) compared with a 14 percent increase for South Africa’s seven – member FTSE/JSE Africa Banks Index.
Since the 2008 home grown financial crisis, Nigerian banks have had to deal with higher capital requirements for a given amount of assets and tighter monetary policy.
The regulator also told lenders to lower fees and commissions to reduce costs to customers.
Omosebi says the general expectation late last year was a further increase in public sector CRR, and the banks are factoring that as well as the TSA.
“I think the impact of the kick-off of the TSA reform will be mildly felt by the banks, as the banks have little chunk of this money to play with as we speak,” Omosebi said.
AKIN-OLUSOJI AKINYELE & PATRICK ATUANYA
