The cash shortage occasioned by the
commencement of the Treasury Single Account policy will make banks’ profits to
decline, it has been learnt.
Top bank executives told our
correspondents on condition of anonymity on Wednesday that the lenders had
moved substantial part of their funds to the Central Bank of Nigeria in compliance
with the TSA policy.
As such, they said most of the
banks’ treasuries had been depleted, leaving them with lower amounts of cash to
engage in trading and other transactions that would have yielded higher
profits.
One of the bankers said, “There is
lesser amounts of cash in the banks’ treasuries to buy Treasury Bills, bonds
and other assets. This will lead to lower profits for the banks at the end of
the day.
“However, the impact of the
implementation of the TSA as directed by the Federal Government, which has led
to the withdrawal of up to N1.2tn from the banks, can be minimised by a
reduction in the Cash Reserve Ratio.”
Analysts at Renaissance Capital
said on Wednesday, “Considering that federal deposits, which left the banking
system, were estimated at N1.2tn, we compute the CRR release at N202bn, which
implies a net system debit of N1tn post TSA implementation.
“This is still significant, partly
due to the fact that FX federal deposits on which there was no CRR also left
the system. On our estimates, system naira deposits should be lower by five per
cent, FX deposits by 12 per cent, total deposits by seven per cent and CRR at
CBN (post release) down by five per cent.”
The analysts said for a reduction
in the CRR to have the desired impact, it had to be moved down to 23 per cent.
On the back of comments by CBN
officials that they would do what they could to minimise the impact of the TSA
on the banks, including reducing the CRR, the Renaissance Capital analysts
said, “We run some numbers to deduce what the CRR number would release
sufficient cash back into the system to offset the net liquidity debit from the
system of N1tn post TSA. Ceteris paribus, we deduce this figure at 23 per cent
CRR.
“Essentially, we deduce that if CRR
is maintained at 31 per cent at next week’s MPC meeting; the banking system
will remain under liquidity pressure, significantly hurting banks’ funding
costs and earnings. Reuters today (Wednesday) indicates that the interbank
market remains shut from yesterday (Tuesday), with no trading going on, though
some banks are quoting indicative rates as high as 50 per cent.”
The Managing Director, Cowry Asset
Management Limited, Mr. Johnson Chukwu, explained that the implementation of
the TSA would “further tighten the available liquidity in the system and that
will lead to uptick in lending rates. In fact, the banks are actually refusing
to lend. What that means is that you will have very little credit flowing to
the real sector and economic activities will further slowdown.
“It simply means that despite the
fact that stocks have very low prices now, we are not going to see additional
liquidity because if interest rates are going up, the pension fund managers
will put their money into fixed income instruments instead of equities, because
return on fixed income will be better than equities’ returns.”
A financial expert at WSTC
Financial Services Limited, Mr. Tola Oni, said, “Banks will have lesser amount
to push into the real sector and it means that the cost of credit will be
higher. Now, for the money market, because they will be lower level of
liquidity, it is going to increase the money market rates.
“For the equities market, the banks
constitute conveniently a third of the market; so, whatever affects them will
affect the market. Businesses thrive on credit. So, if the cost of credit is
higher, it is going to affect costs generally. I don’t know if the Monetary
Policy Committee of the CBN will compensate them by reducing the CRR.”
Credit: Punch
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