Govt, banks mitigate impact of unified accounts on financial sector stability
Three bodies — the Ghana Association of Bankers, the Ministry of Finance and the Bank of Ghana — have agreed on modalities that the government should use to transfer public sector deposits and cash assets from the banking sector into a Treasury Single Account (TSA) without causing a shock to the stability in the financial sector.
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They were arrived at after the three sides agreed that the implementation of the unified accounts system could result in a liquidity deficit in the sector.
Thus the modalities are needed to help minimise the “potential shock” and “liquidity imbalance” that the cash withdrawal will cause to the banking sector.
The President of the Ghana Association of Bankers (GAB), Mr Alhassan Andani, who disclosed this to the Daily Graphic, added that the banks were confident that the measures put in place by the MoF and BoG would help to ensure that the migration onto the TSA would not affect the stability in the banking sector.
He thus commended the Minister of Finance, Mr Ken Ofori-Atta, and the BoG Governor, Dr Ernest Addison, for listening to their concerns and agreeing to factor them into the implementation process.
Cash with banks
Mr Andani said an audit conducted in May showed that public sector deposits and cash assets with the banks amounted to GH¢3 billion.
The amount was a summation of public sector deposits and cash assets that were held by the banking sector on behalf of State-Owned Enterprises (SOEs) and ministries, departments and agencies (MDAs) as of May this year.
It represents about six per cent of the banking sector’s deposits which totalled GH¢53.2 billion in May.
Reduce reserve ratio
To help minimise the impact of the TSA on liquidity position of banks, Mr Andani sent a plea to the BoG to reduce its Reserve Requirement Ratio (RRR) from the current nine per cent to six per cent.
The RRR is the per cent of customer deposits that banks are enjoined by the central bank regulations to reserve in their vaults or at the BoG as insurance against default.
At nine per cent, it means reserve cash of banks in the country stood at GH¢4.8 billion in May when the sector’s deposits was reported at GH¢53.2 billion.
Mr Andani, who manages the Stanbic Bank Ghana, said the association was convinced that the reduction in the RRR would help free up extra liquidity into their operating funds.
Once done, he said the new cash would then help to replace the void that the movement of public sector deposits and cash assets from the banking sector would create.
Genesis
Giving a background to the GAB’s recommendations, Mr Andani told the Daily Graphic on July 29 that the MoF and the BoG had met with the executive council of the association in May to inform them about the expected impact of the TSA on their operations and the sector as a whole.
“At that meeting, they showed us the data that they had and explained that they were sharing the data because we know that taking that action (creating a single account for government funds) will have consequential impact on banks. We welcomed that gesture and we thought that it was gracious of the minister and the governor to have brought that to our attention,” he said.
Confronted with the reality, Mr Andani said the association then convened a meeting between the implementation team, comprising the MoF, BoG and Controller, and all bank MDs, to help discuss the issue at length.
The meeting concluded with banks recommending that the implementation of the TSA be delayed by a month, starting from June.
Improving public financing
Although a direct hit on the banking sector’s liquidity position, the withdrawal of public sector deposits from the 34 banks into the TSA will create a ready pool of funds that the state can then use to finance the budget.
Also, the coming into force of the TSA should, among other things, eliminate the situation where banks virtually lend the government’s own money back to it through the purchase of Treasury bills (T bills).
This translates into efficiency in public financial management in line with the expectations of the International Monetary Fund (IMF) which pushed for a law to back the unified account system.
If Ghana succeeds in introducing a TSA for all public funds, it will be adding to Nigeria which implemented the system in 2016.