Nine of Nigeria’s money deposit banks were directed, last week, to immediately remit about $ 2.12bn Nigerian National Petroleum Corporation funds currently domiciled with them into the oil corporation’s Treasury Single Account with the Central Bank of Nigeria.
The latest directive, dated August 23, 2016, however seems to be a reversal of an earlier approval dated September 14, 2015, from the office of the Accountant General of the Federation, for the CBN to exempt some government departments and agencies from domiciling their income and transactions in a central Treasury Single Account with the CBN. The AGOF’s circular confirmed that 13 exempted agencies are “profit oriented government business entities that pay dividends to the federal government of Nigeria;” according to the Accountant General, in another circular, such companies included the NNPC, PHCN, Nigeria Railway Corporation and others.
Consequently, the “indicted” banks insist that the Accountant General’s approval, cited above, absolved them from any wrongdoing for domiciling NNPC’s deposits. Notwithstanding, the banks maintain that there was already an existing timeline for the remittance of such funds to the TSA. Nevertheless, in late August 2016, the CBN suspended nine banks from further participating in the lucrative foreign exchange market until they remit the public funds in their custody into the TSA. The suspended banks included UBA with ($ 530m), FBN ($ 469m) and Diamond Bank ($ 287m) of the NNPC and affiliate’s funds.
It is uncertain how this issue will be resolved, but the obvious questions must be, whether or not these banks can readily return the cash, and what would be the impact on the banking sector if they did? Instructively, we must recognise that idle funds in bank vaults are clearly anathema to professional best banking practice. Nonetheless, if unexpectedly, these NNPC deposits were simply kept sterile, the funds should be readily available for immediate transfer to the CBN.
Conversely, a forced instant withdrawal of over $ 2bn from the nine banks may create a dangerous liquidity ripple on the entire domestic banking system and significantly spike interest rates to make domestic borrowing a risky option. Worse still, the parlous state of Nigeria’s economy may make it an expensive and daunting challenge for these banks to expeditiously raise the required funds from the international money market.
However, the latter realisation that the CBN’s latest directive may induce systemic liquidity stress in the banking sector, with a collateral contraction of the wider economy, the apex bank may ultimately become inclined to again review the procedures and timeline for withdrawing such NNPC’s funds from these banks.
Nevertheless, there are indications that the CBN conversely also owes the banking consortium about $ 3bn, being funds they had committed to the CBN’s contrived futures forex market. This may be a tenuous gambit, on the part of the banks, because over N600bn worth of naira liquidity will be instantly wiped off their books if the CBN accepts the current naira value committed to the forex future’s market in place of the $ 2.12bn NNPC deposits in their custody. However, the resultant liquidity squeeze in the money market may induce distress in the sector and further spike the already disenabling domestic cost of funds well beyond 30 per cent. Unfortunately, such outcome could eliminate any hope of economic prosperity.
In retrospect, however, when the implementation of the TSA commenced in earnest in August 2015, there were also fears, in some quarters, that banks will be drained of liquidity, if all government agencies removed their funds from commercial banks and remitted same into the TSA with CBN.
Hereafter, is an excerpt from an article titled, ‘Does the CBN mastermind the brazen rape of the treasury’, published in The PUNCH and Vanguard newspapers on July 12, 2015 or visit www.lesleba.com. The excerpt is as follows:
“However, the marginal impact of the TSA on banks’ liquidity was revealingly underscored recently by the reaction of Nnamdi Okonkwo, Chairman of the Bankers Committee, on the effect of TSA and the CBN’s reduction and harmonisation of Cash Reserve Requirement, for public and private sector bank deposits to 25 per cent in October 2015. Curiously, instead of the dreaded liquidity, Okonkwo had unexpectedly elatedly declared that:
“CBN (actually) made Nigerian banks richer as it returned N740bn to the sector, and in the process made liquidity available to the banking system”, consequently, the Banker’s Chairman concluded that “we can say that there is no alarm on account of moving the TSA funds, and ‘I am (therefore) pleased to inform you that after the review and after compliance, industry liquidity remained strong”.
