The reintroduction of the Treasury Single Account (TSA) by the current administration has been at the centre of much financial discourse of late. As discussions continue on the pros and cons of this public policy action, opinion has been seriously divided. While some think that it is a great way to tackle Nigeria’s galloping public financial mismanagement, others argue that it will worsen the already slowed growth of the economy.
There is nothing so innovative about the TSA. We have always had it as part of our public sector financial management. It is in use in most countries of the world where transparency in financial management is considered important. Not that it is a final solution to mismanagement of public funds but it could make an incremental contribution to a more transparent and efficient management of government funds. Government once in a while calls back its funds to the Central Bank and we called it withdrawal of government deposits. The problem is that it has not been consistently employed. Like most policy initiatives in the country, its relevance or applicability has always depended on the whims of the man in charge. If he agrees with the factual argument that the maintenance of a multiplicity of accounts in banks by MDAs is susceptible to opaque fund management and corruption, then we notice a revival of the policy.
Right now the thrust of the argument against the TSA is that the banks are drained of cash and may no longer be in a position to make loans to commerce and industry and, if they do make any loans at all, the interest rate would be too high.Those on this line of argument also fear a possible banking crisis that may follow the movement of liquidity away from the banking sector to the Central Bank. The extreme case of this line of argument is that we may witness another round of consolidation in the banking sector that the policy may precipitate.
Well, we cannot say that these arguments lack merit in their entirety. They have some relevance but I think there is some exaggeration of the possible consequences of the TSA on the economy. First, the Cash Reserve Requirement has been reduced from 35 percent to 25 percent. This is very substantial relative to the cash being drained out of the banking system. It released a lot of cash to the banks, and this would, at least to a significant extent, reduce the impact of the outflow. Second, we should not forget that it is not every bank that had access to government deposits. Although some banks had a large chunk of their deposit liabilities sourced from the public sector, the spread was narrow. Public sector funds have always been a cartel business. Only the initiated had any relevant sums drawn from MDAs. Those who belonged, or had high level contacts, got substantial government deposits. Others made fruitless rounds of call to the MDAs and settled with crumbs. So the impact of the movement of government funds back to the government bank will not be as widespread as some analysts are projecting. There is also not likely to be any consolidation arising from the implementation of the TSA. Most Nigerian banks are properly capitalized and management has been substantially improved since the Soludo reform activities. To a large extent, one does not expect a well-run bank to lose its balance because of deposit withdrawal when the market, at least the informal markets, are awash with underbed and pillow cash.
Again, some pundits have predicted the likelihood of some job losses in the industry, as a result. I also do not agree. This policy action is not expected to have any lasting impact on the banking sector because deposit is always a dynamic item and constantly in a state of flux. The negative impact of the diminished deposit base will be reduced by the fact that there are other sources of funds to be harnessed. Therefore, any bank that lays off staff on this basis – or on the flimsy reason of the operation of the TSA – must have some story to tell the regulators. It is not unlikely that the bank had been going through some unexposed problem before now.
Such an action should be seen as a warning to the regulators and they should raise the bank’s danger signal level. Regulators should consider such action as a red flag on the health of the particular bank, which calls for supervisory and remedial action. Much as we know that capitalism is a box of merciless cold calculation wrapped in fine linen, corporate organizations should continue to give it some human face as they have been doing through various Corporate Social Responsibility actions. If the nation is going through a phase, those who have benefitted the most from the system should not be quick to reject sacrifice if any is demanded.
I would rather prefer to think that by introducing the TSA, another great opportunity has arisen for Nigerian banks to make more money and advance the cause of financial inclusion. Truly, as in Chinese, the same word means both danger and opportunity. So this policy action spells both danger for static players but opportunity for the innovative players in the financial sector. It will surely benefit some enterprises. First, I think it presents an opportunity for bankers to return to aggressive deposit mobilization activities. Nigerian banks have long since moved away from armchair banking and almost perfected the act of marketing for funds. So I have no doubt they will seek, find and capture large amounts of fresh deposits to further douse the impact of the policy action.
I also expect the banks to see this as an opportunity to expand their horizon and bank the unbanked. The proportion of money supply outside the banking system is still irredeemably high. The “bad guys” in the informal sector, who have refused to bank their cash, are waiting for conversion. More funds are in the vaults of individuals and SMEs than the banks will ever hold. Ask the Central Bank why its monetary policies, even the most efficacious ones, run into brick walls. Let us go and fish out these funds and bring them above the line. That is financial intermediation, a vital arm of the role of the banks that has not been fully maximized. So let everyone see this as an opportunity to extend our campaign of financial inclusion – the first step in economic inclusion.
I expect the bankers to move inland and mobilize deposits from the rural areas. By this they create new markets, discover new customers and forge a new win-win outcome. We know from the era of the Rural Banking Programme of the 1970s and 80s, that the lending does not take place in the rural areas from where the funds are scooped but let them scoop it first. Perhaps they may discover the treasure that lies at the proverbial bottom of the pyramid by working with MSMEs, if not through credit facilities, maybe through other support arrangements.
Therefore, let us look at the far side of the TSA, which I think is positive. It is the consequential possibility of redirecting the attention of the deposit money banks to mobilize deposits from, and grant facilities to, MSMEs: that is what I call the positive micro side of the TSA.
Emeka Osuji
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