EFFECT OF TSA ON FINANCIAL PERFORMANCE OF DEPOSIT MONEY BANKS

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EFFECT OF TSA ON FINANCIAL PERFORMANCE OF DEPOSIT MONEY BANKS

CHAPTER ONE

INTRODUCTION

1.1 Background of the study

World over, the banking sector is indispensable to the growth and development of every nation. They ensure resources mobilization and play a pivotal role in the allocation process. [1] submitted that firms in the banking sector are the main source of financial revolution and efficiency in the economy. This, therefore, informs that poor performance of banks in terms of low profitability would grossly affect the economic development of a nation. Profitability is used as a measurement for banks’ performance because it evaluates the efficiency with which shareholders’ resources are transformed into profit [2].

In the banking industry, the performance of banks is better measured using Profit after Tax (PAT) that revolves the net profit earned by a firm after the deduction of all expenses like depreciation, interest, and tax. Return on Assets (ROA) is used to indicate the extent to which firms in the banking industry are able to effectively and efficiently manage their assets to generate profits [3]. Return on Equity (ROE) reflects how effectively bank management is able to use shareholders’ funds, and Earnings per Share (EPS) represents the portion of a company’s earnings, net of taxes and preferred stock dividends, which is allocated to each share of common stock.

In Nigeria, Deposit Money Banks (DBMs) seem to fall short of expectations of their customers and their anticipated contributions to economic development. In this wise, [1] submitted that facing DBMs in Nigeria are demanding competitions and liquidity declination engendered by technology innovation, regulatory requirements and most importantly government financial reform like Treasury Single Account (TSA). All these appear to have a negative effect on the profitability of Deposit Money Banks in Nigeria as they are relieved of the custodian of public funds that caused extreme liquidity.

TSA is a public accounting system under which all government revenue collected into one single account, usually maintained by the country’s Central Bank [5]. TSA relived DBMs of the management of the cash resources of Ministries, Departments, and Agencies (MDAs) and created a hole in their liquidity base. As noted by [6], the idea of TSA came into existence when some agencies refused to declare and remit 25 percent of the annual revenue they generated into the treasury as demanded by law. It was introduced for the purpose of uniting all inflows from the country’s MDAs into a single account at the Central Bank of Nigeria.

It was under the administration of President Muhamadu Buhari that it was fully implemented. In February 2015, the central bank of Nigeria (CBN) issued a circular directing all deposit money banks to implement the Remita e-collection platform. The Remita e-collection is a technology platform developed by system specs, which was adopted by the Central Bank of Nigeria (CBN) for the collection and remittance of governments funds to a consolidated account domiciled with the central bank of Nigeria (CBN) [7]. This marked the beginning of the implementation of the treasury single account system in Nigeria [8].

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.

1.3 Objectives of the study

To understand the effect of TSA on financial performance of deposit money banks
To understand the relationship between TSA and financial performance of deposit money banks

1.4 Research Questions

What is the effect of TSA on financial performance of deposit money banks
What is the relationships between TSA and financial performance of deposit money banks

1.5 Research Hypothesis

H0: There is no relationship between the roleof TSA and financial performance of deposit money banks

H1: There is a relationship between the roleof TSA and financial performance of deposit money banks

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