CBN pledges financial system stability despite TSA

The Central Bank of Nigeria (CBN) is fully committed to ensuring financial system stability and would not permit the implementation of the single treasury account mechanism, (TSA) to further worsen liquidity in the system, BusinessDay learnt last night.

The assurance of the apex bank came on the day Nigeria kicked-off a landmark reform intended to improve transparency in the country’s notoriously corrupt government departments and which could see as much as 10 per cent of the N12 trillion to N13 trillion naira in Nigeria’s banking system being taken out.

A senior official of the CBN told BusinessDay yesterday that there was no reason for any panic “given the fact that over the years the apex bank has been quick to demonstrate its strong commitment to financial system stability in Nigeria.”

Applause for the reform has come from Razia Khan, chief Africa economist at Standard Chartered, who says the reform would bring longer-term benefits.

Khan said, “this is a reform that should have taken place ages ago and the fact that it’s finally coming into place now is very important.”

However, some other analysts including Philips Oduoza, Chief Executive Officer of UBA, told the Financial Times, “the amount involved is very substantial and this will further tighten liquidity.”

The CBN official dismissed the concerns being expressed, saying “we will certainly not allow the liquidity in the financial system to suffer as a result of the implementation of the reform.

“You know that the Central Bank has an idea of the level of liquidity which the financial system requires at all times and if we see any threat to this level, we will not hesitate to move,” the official told BusinessDay.

Asked if the apex bank would consider a reduction in the CRR, which is a specified minimum fraction of the total deposits of customers that banks must hold in reserve, the official said, “yes, the CBN will consider any measure that is appropriate, including making changes to the CRR.

”We are keen to ensure that there is no shock or threat to the financial system and we know well enough that the this policy was never intended to starve the banks of the credit they need to pursue their role of lending to the economy for the growth that creates jobs and wealth.”

A directive from Nigeria’s President Muhammadu Buhari, enforced from yesterday, will require all federal revenue-generating institutions, including the opaque state-owned oil company, to begin paying their revenues into a Single Treasury Account instead of a web of largely untracked private bank accounts.

In a significant boost to Buhari’s corruption-fighting credentials, the move, aimed at addressing a decades-long lack of oversight in state revenue, is projected to see more than $6bn of public funds transferred from local banks to the country’s Central Bank.

As part of the measures to impose transparency on the finances of government, Buhari directed all state institutions to shut down their accounts in the country’s more than 20 commercial banks.

Several bankers in Lagos said the minimum amount that will have to be transferred by the banks holding government funds is more than N1.3 trillion, or roughly $6.5bn.

In spite of the predicted financial fallout, analysts say the move, if fully implemented, is a significant step for Buhari. The 72-year-old former military ruler has pledged to root out deeply embedded corruption in a state that has failed to translate the country’s vast resource wealth into an improved quality of life for Nigeria’s 170m people.

John Omachonu