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Andi Daze |
Remi Fadahunsi |
The establishment of the Treasury Single Account (TSA) policy by President Muhammadu Buhari is a particular revolution in public finance administration as well as commercial banking. It follows the laudable anti-corruption campaign reflecting the change mantra of President Buhari's election. Indeed, the TSA has necessitated increased observation of Nigeria's banking sector, since many believe it has inadvertently unveiled the true strength and stability of Nigeria's commercial banks.
The TSA is intended to create a unified structure for the administration of government accounts. Its legislative source is the (amended) Nigerian Constitution. It seeks to enhance transparency and accountability by demanding that inflows to government ministries, departments and agencies (MDAs) are sent to the Consolidated Revenue Account (CRA) held by the Central Bank of Nigeria (CBN). This is a change from the previous practice where government funds were dispersed largely under the control of various MDAs.
Under the TSA, commercial banks maintain revenue collection accounts on behalf of the MDAs, but now act only as collection agents remitting funds to the CRA at the end of each banking day. Within six months of implementing the TSA, more than 20,000 public sector commercial bank accounts were emptied of N1.2 trillion (approximately $6 billion). As a result of the significant contributions of public sector funds to bank deposits, Nigeria's banking sector is experiencing severe liquidity challenges. Interbank lending rates have increased by 70% due to the scarcity of funding. The combined effect of the TSA policy and falling oil prices on the economy has impacted the earning power of Nigerian banks and the ability of some banks to meet the minimum capitalisation requirements.
In light of the current administration's unwavering enforcement of the TSA, it is necessary for previous MDA-dependent commercial banks to re-strategise and modify their current business strategy. For banks that can't meet the capitalisation requirements, the TSA might usher in the largest spate of mergers and acquisitions within Nigeria's banking sector. Considering the need for progressive development within the commercial banking space, it is hoped that the drastic revenue reduction will force commercial banks to focus on developing accessible products for the public and private sectors. This would be in keeping with the government's overall drive for economic diversification. While profitability may decrease in the short-term, a coordinated effort to support growth in promising sectors, combined with strategic government policy developments and reform, will see Nigeria's economy and banking sector gain far more in the long-term.
Andi Daze and Remi Fadahunsi