Nigeria’s banking industry may soon begin another round of retrenchment following the expiration of the September 15 deadline for compliance with the its Treasury Single Account (TSA) by its Ministries, Departments and Agencies m(MDAs).
Industry sources have however expressed fears that its implementation may lead to mass job losses in the banking sector, as an estimated 20,000 bank accounts operated by the MDAs will be closed from today.
Financial experts are of the view that the effects of the TSA, Cash Reserve Ratio (CRR) and the phasing out of Commission on Turnover (COT) would compound the woes of deposit money banks in the country, and will further mount significant pressures on their profits, leading to cost-cutting, including staff rationalisation.
Findings by Daily Sun show that most banks that are top beneficiaries of the MDAs’ accounts have started downsizing their workforce, even as they are jittery due mainly to the fact that if government decides to implement the policy strictly, there will be serious liquidity crisis in the top six banks as the public sector deposits control about 70 per cent of total money market liquidity.
The Presidency last week issued a threat on full compliance with its directive by September 15 deadline to MDAs to move all their monies to the TSA and other designated accounts maintained and operated at the Central Bank of Nigeria (CBN), except otherwise expressly approved.
The CBN in its second quarter 2015 statement, estimated that the agencies had about N1.24 trillion in about 20,000 accounts with different commercial banks. The report indicated that less than 10 per cent of banking industry’s N13 trillion total deposits are public sector funds.
But some of the affected banks had said that the CBN’s record was based on the returns’ renditions by banks, which had substantially under-reported public sector proportion of their deposits in order to stave-off the impact of the apex bank’s dual CRR policy, which was then heavily skewed against public sector deposits.
However, going by confirmations from top executives of banks that control huge public sector deposits, government agencies are currently said to be holding about N2.6 trillion in 20 banks contrary to the initial estimate of N1.24 trillion reported in CBN’s second quarter 2015 report.
Head of Investment and Research at BGL Securities Ltd, Mr. Femi Ademola,who spoke to Daily Sun said the combination of the TSA and CRR implementation would result to income reduction, which would put significant pressure on banks’ profits, stressing that one of the reasonable options to sustain profitability would be cost-cutting and staff rationalisation.
Though he argued that the banks have been accused of not carrying on the proper business of banking but are involved in “cash round- tripping” by taking funds from the government and using same to invest in government bonds and T-bills, thus making huge returns without risking their capital.
“With the implementation of the TSA, banks will need to do proper financial intermediation and find innovative ways to improve liquidity and returns. It would be tough at the initial stage but with time, they will adjust,” he said.
