The TSA And Financial Systems Stability



Given my background as a former managing director of a major bank, I struggled with the propriety of writing on what I believe is a looming crisis in this sector that I love and to which I owe a lot. I felt that some people may interpret it as loyalty to my constituency, but I am sure that more perceptive people will agree that I had not spared the industry and former colleagues in previous articles when necessary.

After serious reflection, I was convinced that it was my patriotic duty to raise this necessary alarm in this formal and public format. Simply put, the manner in which the TSA is currently being implemented, has the potential to drag the larger economy into further distress. It is imperative that concerned parties take a second look at it with a view to addressing some of the unintended consequences.

The Treasury Single Account (TSA) was introduced in 2012 to “sweep”, on a daily basis, all balances in the accounts of ministries, departments and agencies (MDAs) into a consolidated government account with the Central Bank of Nigeria (CBN). It was not until late last year that the Muhammadu Buhari government ordered its immediate implementation. It is estimated that commercial banks in the country lost up to N3.5 trillion of their deposits to full rollout of the TSA scheme. The whole idea of the TSA is to ensure transparency in the management of funds belonging to government and stop government functionaries from running multiple accounts in multiple banks. Relevant government departments would have oversight of all cash flows across the banks.

It is aimed at monitoring receipts and expenditure and blocking leakages as operational accounts would cease to exist. It is expected that the TSA would eliminate inefficiency in the management of government funds. There are instances where one arm of government would wind up with credit balances in one bank while at the same time borrowing in other banks and even in some cases, the same bank. Some government agencies would have credit balances in some of their accounts and debit balances in others in the same bank. They would then end up making huge interest payments on the debit balances while earning little or nothing on their credit balances. The TSA was to take care of all those inefficient account management practices.

Last week, CBN came up with the news that nine banks were suspended from the foreign exchange market for withholding and concealing over $2.2 billion NNPC/NLNG funds which were meant to have been remitted to the TSA last year. A day later, one of the banks was let off the hook, apparently, having remitted its own portion. Shortly after, the NNPC came out with a statement to the effect that it was actually the one that discovered the concealment and reported the matter to the Presidency which in turn called CBN’s attention to it. Meanwhile, the affected banks came out with different statements, explaining their own positions, most of them denying the concealment allegation.

I believe a lot of things went wrong with this whole drama. The most curious is the NNPC statement. Could it be true that NNPC discovered the ‘concealed’ funds after all the funds should have been remitted close to a year ago? If this is true, then something very terrible is wrong with an organisation which would discover that its $2.2 billion was missing, almost one year after. On the issue of concealment, is it possible for the banks to hide the said funds? My take is that it is not. All the banks render returns to the central bank periodically and public sector funds must be reported. Besides, the CBN and Nigeria Deposit Insurance Corporation (NDIC) do very thorough examination of banks periodically and such records cannot be hidden.

While the intentions behind the TSA are quite laudable, I do think that the way it was implemented, rather hurt the economy big time. I also feel it was implemented at a very inappropriate time. First and foremost, we must look at the economy as a system with different component parts. A weakness in one unit easily becomes a weakness in the entire system. It is like a chain that is as strong as the weakest link. You may not like banks (and may be bankers), but they remain the engine of the economy. That is why everywhere in the world, banks are treated with some caution as any negative action naturally would have a spiral effect on the economy. The timing of the withdrawal of public sector funds from banks coincided with when the economy was reeling from drastic fall in oil prices and attendant foreign exchange crisis.

That was a time when all economic hands needed to be on deck to swim out of the mess we found ourselves. That should not have been the time to take such a drastic action that was capable of sinking some banks. If it is true that about N3.5 trillion was lost by the commercial banks to TSA, it therefore follows that the banking industry lost over 50 per cent of total specified liquid assets which had averaged N6.75 trillion in the last two years. Put simply, liquid assets of banks are cash and near cash items which banks can access quickly to meet short term maturing obligations. The most important job of the bank is to be able to pay customers when they want to withdraw their money. Every bank must have enough war chest to respond to emergency withdrawals.

Therefore, the ability of banks to deal with this most important function was reduced by half as a result of the implementation of the TSA. The other point is that the withdrawal represented about 20 per cent of deposits of all the banks in the country estimated at about N17.5 trillion as at the end of the first quarter this year and 13 per cent of the aggregate assets of the industry which stood at N27.4 trillion by the end of April this year. A cursory look at these numbers will show that this economy is not only small, but very fragile even in the best of times. This is more so during a period of severe economic crisis such as now. Understanding these issues should help in determining the kind of shock the economy can

Given the scenario painted, one thinks a phased approach would have been a lot better than the ‘one fell swoop’ action. Having done that already, I believe that the events of last week are unhelpful given the recession that has hit us. The implication of banning those banks amongst which are four of the eight systemically important banks includes that their customers would have to go elsewhere for foreign trade transactions including letters of credit and bills payments denominated in foreign currency. The panic created could make customers want to withdraw their deposits for fear of losing them, in case CBN makes good its threat to further penalise those banks.

The banned banks themselves, who I understand were unable to pay the $2.2 billion because of lack of dollar liquidity and the scarcity experienced in the foreign exchange market are further thrown into more crises as they have been shut out of the market from where they could have been able to source the foreign exchange to pay back. The ability of such banks to engage in lending activities would also be impaired by this action. Their margins would be further put under pressure and they would be left with no option than to consider further cost cutting measures including laying off staff like we had seen in the recent past.

The central bank needs not be reminded that one of its most important functions is to maintain financial and economic systems stability. It must weigh its action against this major requirement. I am unable to see how the recent action helps stability. The announcement-effect has great capacity to further damage the brands and precipitate a run on the banks. Foreign exchange rates that had hovered around N395 to the dollar jumped next day to over N400 and closed on Friday at around N410. The stock market also responded sharply as it was reported that banking stocks headed south, resulting in the loss of billions of naira in market capitalisation. My thoughts are that the central bank should look deeply at the circumstances surrounding the inability of those banks to pay back the deposits in the original currency that they were received.

It should, therefore, consider accepting local currency equivalent from the banks. In fact, the CBN should debit the banks’ accounts domiciled with it for the naira equivalent. Some of the banks had extended fairly long term loans to both the power and oil sector which we all know cannot be liquidated immediately. Some have even made provisions for the loans in the light of the current realities of the economy. The alternative is for the CBN to work out structured repayment plan for the banks to enable them pay back the funds to the TSA over an agreed period of time. We should do everything to prevent a crisis in the banking sector. The last exercise which resulted in the creation of AMCON left the economy with very deep scars as the cost of that resolution was above N4 trillion and recovery is proving extremely difficult.

While I agree with the benefits of the TSA as intelligently espoused by its proponents, I do have quite some concerns about it. Besides the timing issue I raised earlier, I do not agree that taking out such large amount of money from the banking system and locking same away in CBN vault is useful to the economy. Economists talk about the multiplier effect of money. This means that money in banks is capable of creating more money as banks continue to lend portions of it to areas of need. Denying the banking industry access to such an amount of money is a great disservice to the economy. It is also a disservice to the government as I am not sure that CBN would pay interest to government at market rate, that is, if pays at all. There is no denying the fact that government remains the largest spender in the economy as shown by the numbers above.

Keeping the largest spender out of the banking system can only hurt the economy as the ability of financial intermediaries to put such funds to use is hampered. CBN is not structured to operate as a commercial bank and that is why the subtle complaints from some parastatals about difficulty in making simple payments and procurements since the implementation of TSA. My submission about the TSA is that it should be reviewed to work in all the banks where the government has accounts. Every bank will be made to have a TSA which is accessible to both the CBN and the government, where all government balances are pooled on a daily basis and the bank is made to pay interest on aggregate credit balances and charge interest on debit balances.

The system could also be designed such that either CBN or Ministry of Finance would fund all debit balances in banks on a daily basis to ensure the issue of paying interest in one bank while the government has net credit balances in others does not arise. All told, I must also remind banks that it is unacceptable in banking to engage in mismatch of any form, be it tenor or currency. Lending short term funds for long term projects is a ‘no no’. So is lending foreign currency for projects that can only generate local currency. Having said that, I strongly believe that it is no use throwing away the baby and the bath water.


On Wednesday August 24, my attention was drawn to a mischievous article by some spineless folks titled “IN MONTHS TO COME, A TOYOTA CAMRY WOULD BE OFFERED FOR N50,000 JUST TO FEED THE FAMILY”. This poorly written article that trended in the social media had my name as the author. It made an attempt to cast aspersions on the president comparing his first coming to the present. I will like to inform everyone who saw the article that it does not have anything to do with me. I consider it a hatchet man’s job whose purpose I am yet to ascertain. I therefore call on my readers to ignore it and note that the medium for my articles is “Outside The Box” in THISDAY Newspapers and