Banking system may record N1tr net debit
The “shortfall” of about N200 billion represents the already sterilised amount through the Cash Reserve Requirement (CRR) policy at 31 per cent on the N1.2 trillion public sector deposit.
The CRR is the amount of customers deposits, expressed in percentage, that banks are mandated to keep with the Central Bank of Nigeria (CBN).
Meanwhile, there were indications that the interbank market remained shut, with no trading going on.
While it emerged that some financial institutions are quoting indicative rates as high as 50 per cent, no deal has actually been recorded.
Analysts at Renaissance Capital, again, has suggested the need to reduce the CRR rate to 23 per cent as a foil to the expected net negative liquidity impact of the implemented TSA.
The analysts faulted reports in some newspapers (not The Guardian) suggesting that CBN has eased CRR rate for the banks, saying that apex bank would only release the CRR on those funds since the deposits have left the banks.
According to them, while CRR remains at 31 per cent, the consideration for its change, rests with the Monetary Policy Committee, which may eventually be the focal point of next week’s meeting.
While the implementation of TSA are targeted at federal agencies, it also affects both Naira and Dollar deposits level and the balance sheet size of these banks as the deposits/assets have to leave the banks to the CBN.
Specifically, a sub-Saharan Africa Banking Analyst at Renaissance Capital, Olamipo Ogunsanya, in a note to The Guardian, said that a net system debit of N1 trillion post TSA implementation, is still significant, partly due to the fact that foreign exchange 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, foreign exchange deposits by 12 per cent, total deposits by seven per cent and CRR at CBN down by five per cent,” he said
Meanwhile, the apex bank may have indicated interest in easing any ensuing liquidity squeeze, to ensure that there is no shock or threat to the financial system.
But the analysts added: “On the back of this, we run some numbers to deduce what CRR rate would release sufficient cash back into the system to offset the net liquidity debit from the system 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,” he said.
In line with the stern directive from President Muhammadu Buhari that TSA must be fully implemented September 15, banks were duly notified by CBN of the need to ensure strict compliance.
The compliance included deposits both in naira and foreign currency of about 1,098 Ministries, Departments and Agencies, including schools, Nigerian National Petroleum Corporation, Nigerian Communications Commission, Customs, Federal Inland Revenue Service, Securities and Exchange Commission, among others, were affected.
The implementation of the TSA has been long coming, but under President Goodluck Jonathan, former CBN Governor, Lamido Sanusi and Minister of Finance, Dr Ngozi Okonjo-Iweala, it appeared difficult to navigate.
“We understand that the political will was lacking. The CBN however, found another way of implementing the TSA, which was via hiking of public sector CRR, which peaked at 75 per cent.
“This implies that 75 per cent of Nigerian banks’ public sector Naira deposits were moved to a zero interest yielding account at the CBN. Dollar deposits are not affected by CRR,” Ogunsanya said.
But in May 2015, the public sector CRR was harmonized with the private sector CRR at 31 per cent, leading to a net debit, but with varied impact across the sector.
As at June, deposits and assets rose by three per cent and five per cent respectively, compared with four per cent and seven per cent in the same period of 2014.
This was attributed to TSA and there are projections that the figures would end the year weaker, with the full implementation of the TSA.