The Impact Of Treasury Single Account Profitability Of Commercial Bank In Nigeria (Case Study Of UBA Plc)

Project and Seminar Material for Accountancy / Accounting

Abstract

This study examines the impact of Treasury Single Account (TSA) on the Profitability of commercial bank using UBA as a case study. The purposive sampling technique was used to select the firm and data were collected on four indicators of profitability of banks such as Earning per Share (EPS), Profit af- ter Tax (PAT), Return on Equity (ROE) and Return on Assets for the period of 7 years divided into Pre-TSA (2012-2014) and Post-TSA (2015-2017). It was discovered that through the analysis carried out via paired sampled t-test that TSA exerts a positive insignificant impact on all the indicators of profitability covered by this study except Profit after Tax (PAT) that has a negative insignificant impact. Finally, it was recommended that managers of banks should work out modalities that will foster the embracement of the core values of the banking system to collect depositors’ funds, keep them safe and engage in intermediation to create wealth and jobs for the economy. Consequently, overdependence on government fund for operational activities should be discouraged.

Chapter One

Introduction

1.1 Background of the Study

Treasury single account is a banking arrangement put in place to control multiple accounts created by ministries, departments and agencies, (MDAs). The primary objective of a TSA is to ensure effective aggregate control over government cash balances. The consolidation of cash resources through a TSA arrangement facilitates government cash management by minimizing borrowing costs. In the absence of a TSA, idle balances are maintained in several bank accounts. Until the introduction of TSA in Nigeria, MDAs which generate revenue, have the multiplicity of accounts in commercial banks, use part of the revenue generated to fund their operations and then remit the surplus to the federation account. As a result, agencies pay into government account what they deem fit. The result of this situation includes leakages of funds, embezzlement of public funds, and inability of a government to know the exact amount in its account [1]. All these stunted the growth of the economy. This is in contrast to the provision of the Nigerian Constitution which requires that all government revenue generation must be remitted into a single account. The constitution of the Federal Republic of Nigeria; section 80 (1) of 1999 requires that all government revenue be remitted in to a single account of Consolidated Revenue Fund (CRF). Without adherence to the constitution provisions, the Federal Government had been operating a fragmented banking arrangement with thousands of banks accounts in multiple banks.

There were speculations that the introduction of TSA will badly affect the operations of commercial banks in Nigeria. For TSA to work effectively there must be daily clearing of and consolidation of cash balances into the central account. TSA can cover all funds earmarked and budgetary accounts or even funds held in trust by government. All Ministries, Departments and Agencies are expected to remit their revenue collections to this account through the individual commercial banks who act as collection agents. But all monies collected by these banks will have to be remitted to the Consolidated Revenue Accounts with the CBN at the end of each banking day. Remita is the Central payment platform supporting the payments of Federal Government and MDAs under the TSA, as it is widely accepted and connected online to all the DMBs and sizeable number of Micro Finance Banks (MFBs) and Primary Mortgage Institutions (PMIs). TSA allows complete and timely information on government cash resources; improves appropriation control; improves operational control during budget execution; enables efficient cash management; reduces bank fees and transaction costs; facilitates efficient payment mechanisms; improves bank reconciliation and quality of fiscal data; lowers liquidity reserve needs. The custody of the TSA in Nigeria is with the central bank. However, the balances in commercial banks should be cleared every day and all government cash balances should be consolidated in one central account of the treasury at the central bank [2].

TSA issue did not start with president Buhari administration in Nigeria. Actually, the former President Goodluck Jonathan initiated the policy but could not implement it before he left office on 29 May 2015 [3]. Buhari administration in September 2015 ordered all ministries, departments and agencies (MDAs) to sweep their account balances with deposit money banks to a central pool with the Central Bank of Nigeria (CBN) [4]. In the year 2012, government ran a pilot scheme for a single account using 217 ministries, departments and agencies as atest case. The result of the pilot scheme saved Nigeria about 500 billion in frivolous spending. This report motivated the government to fully implement Treasury Single Account (TSA) and directives given to deposit money banks (DMB) to implement the technology platform that will help to accommodate the Treasury Singly Account Scheme. This enables the treasury to delink management of cash control at a transaction level [5] [6].

Treasury single account is a pool in which all government revenue is collected and controlled by the Central Bank of Nigeria, with the view to boost the economy and reduce corruption [7]. These researchers did an analytical work. They collected secondary data from CBN and analyzed it using the segmented simple linear regression where each of the parameters under consideration was analyzed separately. Multiple linear regression would have been a good model for their work. Multiple linear regression will aggregate the entire parameter under consideration in a single regression model to determine the overall effects of the parameters on the overall performance of the dependent variable (TSA). In their work, Treasury Single Account and economic performance in Nigeria were carried out and their result shows that the Treasury Single Account has a positive significant impact on the country’s economic growth. Findings from their analysis show that about 99.12% of total variations in the Nigerian Economy are explained by the TSA indicators, and only 0.88% that is unexplained variations can be ascribed to other factors outside the model.

Treasury Single Account was introduced in Nigeria as a result of numerous corrupt practices that exist in the Country’s public accounting system, lack of transparency and accountability [1]. The researcher holistically looked into the positive effect of implementation of TSA on the Economy, the public accounting system and the undesired consequences on the liquidity base and performance of banking sector in Nigeria. The researcher used primary source of data collection (through questionnaires) to collect data for his study among Management staff of the ten banks selected for the study. She used Chi-square as her test statistic in the analysis of the data. From the results obtained, it was confirmed that the implementation of Treasury Single Account in the public accounting system impacted negatively on the liquidity base and the performance of banking sector in Nigeria. But primary data through questionnaire is not adequate for this kind of research; rather, an empirical (secondary) data based on the performance of the banks should have been used to ascertain the actual performance of the banking sector under the introduction of TSA.

(6) was of the opinion that since the federal government of Nigeria has implemented Treasury Single Account (TSA) to properly manage the scarce financial resources at the federal level, the State Governments of Nigeria should have followed suit. The purpose of their study was to examine the benefits, challenges and prospects of adoption of Treasury Single Account (TSA) by State Governments in Nigeria. The researchers used survey design for their study and used purposive sampling, one of the primary methods of data collections, and in facta non-probability sampling, in collecting the data for their study. But in a study of this nature, purposive sampling is not adequate as it does not give every member of the population equal chances of being included in the sample. A study of this nature also requires an empirical and secondary data instead of questionnaires as a means of data collection.

However, from the result of the analysis, it was observed that, TSA adoption and full implementation by the state governments will be of great benefit even though there will be challenges in a short-run but the benefits in the long-run will definitely out-weight the challenges. The researchers opined that the State Governments of Nigeria should adopt and fully implement TSA for successful control and accountability of public funds. It was also observed in this research that the researcher miss applied T-test statistic to test for a large sample that was even above 100. The appropriate test statistic would have been Z-test statistic. We suggest that researchers should consult widely before embarking on analysis to avoid deceptions and the journals that accept such work should try to review the works properly before acceptance and publication for the interest of the reading public and the reputation of their journal.

1.2 Statement of the Problem

Undoubtedly, before the introduction of Treasury Single Account (TSA), Deposit Money Banks (DBMs) is the custodian of public funds with many duplicated accounts. However, the implementation of TSA ushered in some drastic changes such that the Central Bank of Nigeria (CBN) is now the sole custodian of public fund and DMBs serve as collecting agent throughout the federation. This seems to be the genesis of the liquidity problem most DMBs have been experiencing over the last four (4) years. A bank with high liquidity problem might not be able to withstand negative shocks and contribute to the stability of the financial system. This informs that liquidity is germane to the profitability of banks. [9] opined that the full implementation of the TSA will not be hurting banks. It will only hurt establishments that purport and pretend to be banks but have failed, refused and neglected to understand banking and do what bankers do elsewhere.

Since the implementation of TSA, a lot of studies have been carried out on its impact on the liquidity and profitability of Deposit Money Banks (DBMs) in Nigeria with disaggregated findings. While studies like [1] [10] [11] reported no significant effect of TSA on the profitability of banks studies like [6] [8] [12] [13] [14] [15] and [16] reported a significant effect of TSA on the profitability of banks. These disaggregated findings necessities similar study of this nature. In the same vein, none of these studies used four (4) indicators of the profitability of banks and this constitutes the uniqueness of this present study. Based on these premises, this study was designed to examine the impact of the Treasury Single Account (TSA) on the Profitability of commercial banks in Nigeria.

1.3 Objectives of the Study

The overall aim of this study is to critically examine the impact of the Treasury Single Account (TSA) on the Profitability of commercial banks. Hence, the study will be channeled to the following specific objectives;

Examine the impact of Treasury Single Account (TSA) on earning per share of commercial banks.
Examine the impact of Treasury Single Account (TSA) on profit after Tax (PAT) of commercial banks.
Examine the impact of Treasury Single Account (TSA) on return on equity (ROE) of commercial banks.
Examine the impact of Treasury Single Account (TSA) on return on assets (ROE) of commercial banks.

1.4 Research Question

The study will be guided by the following questions;

What is the impact of Treasury Single Account (TSA) on earning per share of commercial banks?
What is the impact of Treasury Single Account (TSA) on profit after Tax (PAT) of commercial banks?
What is the impact of Treasury Single Account (TSA) on return on equity (ROE) of commercial banks?
What is the impact of Treasury Single Account (TSA) on return on assets (ROE) of commercial banks?

1.5 Research Hypotheses

The following hypotheses will be tested in the course of this study;

H01: Treasury Single Account (TSA) has no positive impact on earning per share of commercial banks.
H02: Treasury Single Account (TSA) has no positive impact on profit after Tax (PAT) of commercial banks.
H03: Treasury Single Account (TSA) has no positive impact on return on equity (ROE) of commercial banks.
H04: Treasury Single Account (TSA) has no positive impact on return on assets (ROE) of commercial banks.

1.6 Significance of the Study

The study of the impact of treasury single account on the profitability of commercial banks in Nigeria will be of great benefit to the federal government of Nigeria, the commercial banks in Nigeria, the ministries, departments and agencies in Nigeria and of most importance to the citizens of Nigeria as proper budget and fund allocation to all sectors of the economy will be done appropriately. Additionally, subsequent researchers will use it as literature review. This means that, other students who may decide to conduct studies in this area will have the opportunity to use this study as available literature that can be subjected to critical review. Invariably, the result of the study contributes immensely to the body of academic knowledge with regards to the impact of treasury single account on the profitability of commercial banks in Nigeria.

1.7 Scope of the Study

This study is structured to generally examine the impact of treasury single account on the profitability of commercial banks in Nigeria. The study will be carried out in UBA Plc. And will further the period of 7years (2012-2017).

1.8 Limitation of the Study

The major limitation of the study is that of data insufficiency which makes it impossible for the study to adopt a uniform time frame for all the channels. And financial inadequacy was the major limitation for this work. The researcher was financially independent as a student the need for material trips and logistics needed for this research was not adequately provided.

1.9 Definition of Terms

TSA:

This refers to Treasury Single Account, is a financial policy or unified structure of government banking introduced by the federal government of Nigeria in 2012 to consolidate all inflow from the country’s ministries, departments and agencies (MDAs) by way of deposit into commercial banks, traceable into a single account at the Central Bank of Nigeria.

Financial Leakages:

This refers to improper outflow of public fund from a circular flow of income model.

Transparency:

A positive and clear view of financial statement of Nigeria.

Chapter Five

Summary, Conclusions and Recommendations:

5.1 Introduction

This chapter summarizes the findings on the impact of the Treasury Single Account (TSA) on the Profitability of commercial bank. The chapter consists of summary of the study, conclusions, and recommendations.

5.2 Summary of the Study

In this study, our focus was on the impact of the Treasury Single Account (TSA) on the Profitability of commercial bank. The study is was specifically set to examine the impact of Treasury Single Account (TSA) on earning per share of commercial banks, examine the impact of Treasury Single Account (TSA) on profit after Tax (PAT) of commercial banks, examine the impact of Treasury Single Account (TSA) on return on equity (ROE) of commercial banks, and examine the impact of Treasury Single Account (TSA) on return on assets (ROE) of commercial banks.
The study adopted the ex-post facto research design, and mean was used to explain the differences in the performance variables of the sampled firm while inferential statistics of paired sampled t-test was used to test if TSA has any effect on the profitability of the firm.

5.3 Conclusions

Some scholars affirmed that the full implementation of TSA would not affect commercial banks except those that failed, refused and neglected to understand banking and do what bankers do elsewhere. Based on these premises, the study was designed empirically to examine the impact of the Treasury Single Account (TSA) on the Profitability of commercial bank in Nigeria. In relation to the discovery made, it was concluded that there was no significant difference in the profitability of UBA before and after the implementation of TSA. In other words, it was concluded that TSA has no significant impact on the financial performance of commercial banks.

5.4 Recommendation

With respect to the findings and the aim of this study, the researchers therefore recommend that;

Managers of commercial banks should work out modalities that will foster the embracement of the core values of the banking system to collect depositors’ funds, keep them safe and engage in intermediation to create wealth and jobs for the economy. Consequently, over dependence on government fund for operational activities must be discouraged.
Bank managers should be proactive in decision making, and they should maintain good, lasting customer relationships that could engender an increase in the number of their customers. This might improve its liquidity base.