How Trea­sury Sin­gle Ac­count could hit banks

Huge de­posits could flow from the bank­ing sys­tem to cen­tral banks

The East African - - FRONT PAGE - By JAMES ANYANZWA The Eastafrican

A source from Kenya’s Na­tional Trea­sury said that in­ter­nal con­sul­ta­tions are on­go­ing on im­ple­men­ta­tion

East African banks are brac­ing them­selves for yet an­other pe­riod of re­duced earn­ings as gov­ern­ments move to set up trea­sury sin­gle ac­counts to mop up pub­lic funds from com­mer­cial banks.

The pol­icy shift, which has been ap­proved by the East African Com­mu­nity part­ner states, is ex­pected to re­duce cash­flow within the bank­ing sec­tor and sub­se­quently sti­fle eco­nomic ac­tiv­ity by re­duc­ing lend­ing to the pro­duc­tive sec­tors of the econ­omy.

The re­gional bloc has re­solved that each part­ner state im­ple­ments a Trea­sury Sin­gle Ac­count (TSA) to en­sure com­plete over­sight over the gov­ern­ment’s cash flows and to re­duce the cost of keep­ing pub­lic money in sev­eral com­mer­cial banks.

Tan­za­nia’s Fi­nance Min­is­ter Phillip Mpango said the move would re­duce the num­ber of gov­ern­ment ac­counts op­er­ated in com­mer­cial banks and the Cen­tral Bank and re­duce costs re­lated to services of­fered by com­mer­cial banks to the gov­ern­ment.

The im­ple­men­ta­tion of this pol­icy comes as re­gional banks con­tinue re­port­ing mixed re­sults at­trib­uted to a num­ber of fac­tors, in­clud­ing high lev­els of non-per­form­ing loans, high op­er­at­ing costs, slow­down in eco­nomic ac­tiv­ity and con­trolled in­ter­est rates in some coun­tries such as Kenya. The re­gional banks that have re­leased their half-year fi­nan­cial per­for­mance for this year are Bank of Ki­gali, KCB, Eq­uity Bank, Co-op­er­a­tive Bank of Kenya, Bar­clays Bank Kenya and Stan­bic Bank Uganda.

In Kenya, KCB Group and Eq­uity Bank an­nounced profit af­ter tax of $121 mil­lion and $110 mil­lion re­spec­tively dur­ing the six months o June 30. Co-op­er­a­tive Bank of Kenya also recorded a 7.6 per cent jump in its af­ter tax prof­its to $99.8 mil­lion driven by in­creased in­vest­ment in gov­ern­ment se­cu­ri­ties. Bar­clays Bank of Kenya’s net earn­ings grew six per cent to Ksh3.8 bil­lion ($37.2 mil­lion) while that of Stan­bic Bank Uganda re­mained flat at Ush96 bil­lion ($25.8 mil­lion).

The Bank of Ki­gali made a net profit of Rwf13.4 bil­lion ($15.4 mil­lion) dur­ing the six months to June 30 com­pared with Rwf16.7 bil­lion ($18.9 mil­lion) in the same pe­riod last year.

While there is in­creased op­ti­mism within the bank­ing sec­tor of a prob­a­ble turn­around in per­for­mance dur­ing the year, rat­ing agency Moody’s In­vestor Ser­vice says the lenders’ in­creased ex­po­sure to gov­ern­ment de­posits could fur­ther dent their earn­ings. In ad­di­tion, cash­flow stress within the sec­tor could be height­ened by the in­creas­ing mis­match be­tween short term de­posits and long term loans, as banks are un­able to use short-term de­posits to lend to long-term bor­row­ers.

“Gov­ern­ment de­posits could drop if the gov­ern­ments con­sol­i­date fund­ing flows from min­istries, agen­cies and de­part­ments into a sin­gle trea­sury ac­count,” says Moody’s, which ad­vises banks to di­ver­sify their sources of fund­ing away from gov­ern­ment de­posits.

“De­posit growth is sup­ported by ris­ing bank­ing pen­e­tra­tion, in­creas­ing use of mo­bile and agency bank­ing, grow­ing house­hold wealth and solid eco­nomic growth. De­posits are in­ex­pen­sive and diver­si­fied, but a size­able mis­match be­tween short-term de­posits and longer-term loans height­ens the risk of liq­uid­ity stress,” says Moody’s.

In Kenya, gov­ern­ment de­posits ac­count for around 10 per cent or $2.9 bil­lion of the to­tal bank­ing de­posits, which stood at $29 bil­lion in 2017. This pro­por­tion of gov­ern­ment de­posits is ex­pected to be re­moved from the bank­ing in­dus­try if the gov­ern­ment goes ahead with its sin­gle ac­count plan.

An­a­lysts at Bri­tam As­set Man­agers say a huge pro­por­tion of de­posits will flow from the bank­ing sys­tem to the Cen­tral Bank, lead­ing to tighter liq­uid­ity in the bank­ing sys­tem. In Tan­za­nia, the gov­ern­ment is­sued a di­rec­tive in Jan­uary 2017 re­quir­ing all min­istries, pub­lic cor­po­ra­tions and local author­i­ties to trans­fer their funds from com­mer­cial banks to the Bank of Tan­za­nia (BOT). This led to an out­flow of de­posits from com­mer­cial banks, es­ti­mated at Tsh600 bil­lion ($262 mil­lion). This di­rec­tive has been cited as one of the rea­sons for the col­lapse of Bank M.

Eco­nomic re­searchers at the Ox­ford Busi­ness Group, a global re­search and con­sul­tancy firm, say con­trac­tion of the to­tal de­posit base for the bank­ing in­dus­try has led to con­cerns re­gard­ing sec­tor liq­uid­ity, and has lim­ited the abil­ity of some in­sti­tu­tions to is­sue loans.

A source at Kenya’s Na­tional Trea­sury told The Eastafrican that in­ter­nal con­sul­ta­tions are on­go­ing on how to im­ple­ment the Trea­sury Sin­gle Ac­count pro­posal.

“We are still con­sult­ing. I know this ac­count is long over­due. There were few hitches here and there be­cause of some changes in pol­icy that in­tro­duced other elec­tronic pay­ment solutions such as the In­te­grated Fi­nan­cial Man­age­ment In­for­ma­tion Sys­tem (IFMIS). But we are on course,” said the source.

The IFMIS was launched in Au­gust 2014 to mon­i­tor how min­istries, de­part­ments and agen­cies utilise funds on a real-time ba­sis in a bid to im­prove bud­get im­ple­men­ta­tion.

It is an elec­tronic sys­tem that au­to­mated pub­lic pro­cure­ment pro­cesses to seal the loop­holesm in the man­ual sys­tem through which state of­fi­cers stole pub­lic funds.

How­ever the sys­tem does not seem to have stopped loot­ing of pub­lic funds go­ing by the eported fi­nan­cial scan­dals in min­istries and gov­ern­ment de­part­ments.

In Uganda, the gov­ern­ment has been un­der­tak­ing pub­lic fi­nan­cial man­age­ment re­forms, of which IFMIS and Trea­sury Sin­gle Ac­count are ma­jor com­po­nents, to strengthen fi­nan­cial and cash man­age­ment sys­tems.

Ac­cord­ing to the In­ter­na­tional Mone­tary Fund Uganda has made good progress on TSA im­ple­men­ta­tion over the past three years.

For in­stance, the coun­try’s Ac­coun­tant Gen­eral’s Of­fice has its core TSA ar­range­ments com­pris­ing a sep­a­rate Uganda Con­sol­i­dated Fund, TSA hold­ing ac­counts and TSA sub-ac­counts for ac­count­ing en­ti­ties. The sub-ac­counts are funded when pay­ments are ready to be made and un­spent bal­ances are swept back to the TSA hold­ing ac­count on a daily ba­sis.

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