FOR fear of running into liquidity crisis, Deposit Money Banks (DMBs) yesterday shunned the nation’s money market to await further directives on how to transfer government revenues into the Treasury Single Account (TSA) to be operated by the Central Bank of Nigeria (CBN).

Consequently, there were no bids from the financial institutions, because they were required to pay for their bids within 48-hours.

President Muhammadu Buhari had directed that all revenues be paid into the TSA as at yesterday, as part of the drive to harmonise Federal Government’s revenue and fight corruption.

“No trading is currently going on because no bank was willing to put out quotes until there is a clearer direction with the implementation of the Treasury Single Account (TSA),” a dealer, who pleaded anonymity, said.

“The market is right now frozen, as no trading is going on,” another trader said.

Earlier, analysts had predicted that the implementation of the government policy will drain naira liquidity from the banking system, potentially putting some banks in a dire situation.

The money market instrument- overnight lending rate– closed at five per cent yesterday. Dealers said the rate was initially quoted at 200 per cent on Tuesday, but no deals were done at that rate.

A frontline economist and Chief Executive Officer of Financial Derivatives Limited, Bismarck Rewane, had said that about N1.2 trillion, representing 10 per cent of banking sector deposits, is expected to be 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 would overcome that,” he said.

Other analysts said the ensuing liquidity crisis as a result of the TSA implementation could be eased through reduction in the rate of Cash Reserve Requirement (CRR), currently at 31 per cent, as well as injection of liquidity into the banking system to minimise the impact of the new account policy.

Indications had emerged that not long after the presidential directive on the TSA was issued, the Nigerian National Petroleum Corporation (NNPC) started withdrawing its funds from the DMBs for retirement with the CBN, an action that has impacted on liquidity level in the banking system, causing rate surge.

With the TSA implementation now extended to all federal Ministries, Departments and Agencies (MDAs), the Nigerian banking industry, on an aggregate basis, would be affected in terms of deposits and funding cost structure.

According to data from the CBN, as at June 2015, total deposits (demand, time and savings) in the financial system was put at N13.5 trillion. Further analysis showed that private sector accounted for a significant 90.7 per cent (N12.2 trillion), while public sector funds accounted for 9.3 per cent (N1.3 trillion).

A breakdown of the total deposits showed that Federal Government had 5.3 per cent (N712.6 billion) while state and local governments deposits accounted for 3.1 per cent (N424.3 billion) and 0.9 per cent (N121 billion) respectively.

Based on the harmonised CRR of 31 per cent, N4.2 trillion of total industry deposits in June was quarantined from the banking system. Taken together with other regulatory guidelines, such as the Liquidity Ratio at 30 per cent, full implementation of the TSA will isolate approximately 5.3 per cent of the available liquidity in the banking system.

Also, with some states like Kaduna and Lagos keying into the scheme, part of the states’ and councils’ accounts, at 3.1 per cent, will be sterilised as well, although the effect will vary across banks based on individual exposure to public sector deposits.

“On an aggregate basis, we expect the implementation of the TSA to lead to an increase in competition for retail deposits and increased cost of deposits and fund in the short term.

“Nevertheless, we expect banks to leverage more on the expansive private sector deposits at 90.7 per cent of total deposits to earn higher yields in retail lending. Hence, we would expect banks to re-allocate assets from financial assets to loans in the second half of 2015 to earn higher net interest margin.

“Also, we do not rule out the possibility of a marginal downward revision of the CRR (from the current 31 per cent) by the CBN at its next rate-setting Monetary Policy Committee (MPC) meeting,” as analyst at Afrinvest Securities Limited said.