Deposit Money Banks (DMBs) have suffered huge losses in customer deposits worth N2.67 trillion, following the full implementation of the Treasury Single Account (TSA) in September 2015, according to the Central Bank of Nigeria (CBN).
Consequently, the aggregate deposit transferred to the CBN from the inception of the TSA regime to March 2016 was N2.67 trillion, representing 15.14 percent of the total deposits of DMBs, put at N17.63 trillion as of April 30, 2016.
Tokunbo Martins, director, banking supervision, CBN, said the loss impacted banks differently, in line with the proportion of their balance sheets that was sustained with FGN deposits.
Due to its large size and low cost, FGN deposits were a huge source of revenue for banks. The yield on Treasury Bills is currently around 14 percent.
“Assuming the entire FGN deposits were invested by affected banks in Treasury Bills at the current yield of 14 percent, it would generate interest income of about N374billion for the banks. This figure provides an indication of revenue that is no longer available to commercial banks due to the introduction of TSA,” Martins, who was represented by Thomson Oludare from the banking supervision department, CBN, said in Lagos at the CBN/FITC (Finance Institution Training Centre), 2016 Edition of Continuous Education Programme (CEP) for directors of banks and other financial institutions.
She said based on the large quantum of revenue earned from FGN deposits, majority of DMBs had created teams with responsibility for mobilising public sector funds. These teams, which were large and significant, were in some cases directly supervised by top management staff. The introduction of the TSA regime and resultant depletion in FGN deposits and related revenue have made these teams unprofitable and their existence untenable.
Consequently, most banks had scaled back or disbanded the teams and in extreme cases released staff deployed to the teams.
The TSA regime impacted the liquidity level in the banking system due to the attendant remittance of cash, which constitutes a major portion of banks’ liquid assets to the CBN. As part of risk management, banks with large FGN deposits mitigated their positions by investing the liability in T-bills and FGN bonds. These banks had to liquidate these investments in order to comply with the TSA regime, thereby further reducing their stock of liquid assets.
However, Martins stressed the need for banks to develop creative ways of mobilising deposits to plug the holes created in their balance sheets by the policy. Banks can achieve this by shifting emphasis from the corporate segment of the market to SMEs and retail customers, thereby expanding their universe of customers.
This policy, if vigorously pursued, will lead to deposit growth in the medium to long term. The large proportion of unbanked Nigerians, presently estimated at 39.5 percent of the adult population, present a great opportunity in this regard.
Speaking at the event, Lucy Surhyel Newman, managing director/CEO, IFTC, said business organisations are entering a new era of ethical and regulatory compliance, transparency, as well as interdependence. Public perceptions of an organisation’s brand integrity, accountability, and social value have become key drivers of its reputation, market positioning, and ultimately its value to all its stakeholders.
