TSA: Bank customers to pay more for services

Nigerian Central Bank, Abuja Nigeria

…As DMBs leverage N130.3bn SLF

By Blaise Udunze
NIGERIA’S deposit money banks may be compelled by current market sentiments to push the bulk of additional interest burdens to customers as they move to leverage the Central Bank’s N130.3 billion Standing Lending Facility (SLF).
SLF is a mechanism that central banks use when lending funds to banks at a specified interest rate. Lending facilities provide financial institutions with access to funds to satisfy reserve requirements using the overnight lending window.
TSA implementation, in addition to the harmonised Cash Reserve Requirement (CRR) of 31.0 per cent, is said to be weighing down the capability of banks to create risk assets while increasing their cost of funds as approximately 5.3 per cent of the largely cheap Federal Government deposits have been isolated.
But financial experts are of the view that the increased borrowing from the Central Bank of Nigeria (CBN) as a result of the TSA and CRR, would likely pass on the additional-interest burden to customers, which could constrain economic capacity, although this may also increase focus on real banking – strengthening competition for retail deposits and expanding credit to the higher-margin retail sector.

About N1.2 trillion or 10 per cent of the banking sector deposits were transferred to the government account with the central bank in the course of implementing the TSA policy.
“We expect an initial paralysis in the market and a disruption of operations of some of the banks, but they will overcome that,” a banker said.
An analyst at Ecobank Nigeria, Kunle Ezun, said the resultant liquidity challenges in the banking system might make the CBN to postpone a planned mop of liquidity through the CRR.
According to him, banks have no alternative but to comply with the directive, saying it is in the best interest of the country in the long run.
“The impact on individual bank’s liquidity will differ from one bank to another, depending on their exposure to public sector funds or deposits. But every bank will have to manage the situation,” Ezun added.
Head of Investment and Research at BGL Securities Ltd, Mr. Femi Ademola, corroborated the view that with the implementation of TSA, banks would need to conduct proper financial intermediation and find innovative ways to improve liquidity and returns. According to him, it would be tough at the initial stage but with time, they will adjust.

Source : SunOnline

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