FROM NBC PRIVATISATION TO REMOVING BILLIONS GOVT DEPOSITS FROM BANKS

Commercial banks in the country are set to lose one sixth of total deposits as the Treasury moves to shift accounts of the government to the Bank of Tanzania, and no longer use commercial banks for routine transactions.

This was a bombshell announced by Treasury permanent secretary Gray Mgonja as the Ministry of Finance was finalizing presentation of its budget estimates before the National Assembly.

The Treasury is thus withdrawing one trillion shillings out of estimated Tshs 6trn total deposits in the banks.

Given the fact that the government budget is slightly over Tshs 6trn this year, it means that the one trillion shillings figure is in a sense relating to time deposits.

But in overall terms plenty of money in government deposits or transactions enters banks each year, far in excess of one trillion shillings that is being cited as the specific amounts affected by shifting government accounts to the central bank.

What is unclear is how far the step may help to boost lending by commercial banks to boost operations, or it may diminish loans.

Looked at the matter from one angle, and probably that is part of government reasoning, is that it pays plenty of money to commercial banks for instance in cashing in cheques, and this prevents their lending drive because of satisfactory returns from such operations.

Removing government deposits would diminish transactions from that source to much lower levels, in which case they may need to lend more aggressively to cover up for the most profit projections.

Such projections presume that lending itself is optimally likely.

What is hard to figure out is the specific rationale of removing deposits, since the cash alibi given is a little difficult to comprehend, as this arrangement has worked since time immemorial.

It might even be that in statutory terms the government should place its deposits with commercial banks so that the manner in which its accounts are operated meets with the same safety and accountability standards applying to all banks.

The point is that the bank has to meet with scrutiny in payments, because of its supervisory organs.

It might be difficult to explain that rental charges (so speak) on maintaining accounts as well as transactions are sufficiently expensive for the government to remove its deposits from there.

For in the final analysis it might have to budget for such charges, and these are `routine` or miscellaneous charges that can be met without necessary budgeting or such specification.

The use of commercial banks for government deposits is to control even government officials in the use of deposits, as they have no access privileges there.

One reason for the change is that since the adoption of laws relating to money laundering the presentation of cheques for payment has become a little laborious in banks as cheques must be okayed by the central bank.

That means four working days must pass, minus the two weekend days and the day the cheque is deposited, which means one week since that date.

It would be easier if all government cheques are placed with the central bank, and in that case it is cleared in-house, not as money sought by some particular commercial bank.

This opens up some difficulties in relation to operational assumptions of the law about money laundering, as the functions given to the central bank means that it isn`t operating as a cheque receiving bank, merely inspecting cheques.

When it takes up that function on account of holding all government deposits, and this is the most important single payer in the financial market, it means that an allowance is being created for government cheques.

That probably doesn`t make much of a difference because it is unlikely that laundering uses government channels to clear bad cash into good, in which case little has changed.

However there is a fine distinction as to how cheques that are meant for paying sums to the government are cleared by the central bank when they come from commercial banks, and if the central bank receives those cheques on its own.

Will it not be taken for granted that these are `in-house` cheques, thus accepted at face value and those paying to the government expecting less trouble in so doing?

At the same time checking against the issuing of bad cheques may start becoming a little trouble some as these will be flooded on the same desk, and whether the central bank can as effectively all payment schedules.

The decision to withdraw government deposits from commercial banks to the central bank on account of excessive payments of rental dues in operations is in a sense similar to withdrawing from the Common Market for Eastern and Southern Africa (COMESA) ostensibly because we had no membership fees for too many regional bodies.

As it was in the previous case it has also got to be true in this case, that the rent or membership fee as it may be isn?t the core of issues, but operations as such.

There is an advantage to have an in-house bank where the government makes all its transactions, and it seems to be better.

As a matter of fact this makes government officials at ease in handling budgetary votes or other government payments, in that they work with banks which talk the language of the government.

Earlier on that was the case, when all government deposits were placed in the National Bank of Commerce, now thrown into a dozen commercial banks, making it a wider problem the number of times that ministerial intervention is needed to remove this or that blocking of funds in a commercial bank.

Whether such need was due to efficiency needs or it is due to being troubled by proper banking procedures will provide the link as to how far the new method promises to be a success, both in efficiency and supervision.

With vastly expanded facilities, and with the government still reeling from the aftermath of selling the NBC to Allied Banks of South Africa (ABSA) - itself finally bought by the UK Barclays Bank plc, having a branch here - more issues arise.

It may constitute some hidden thread of undercurrents of resistance to selling the NBC, and the reconstituting of a government payments facility without having that name, by housing it within the BoT.

That of course removes part of the goodwill or incentive of purchasing the NBC in the first place, and in addition, enables the government to make optimal use of BoT facilities, subduing torrents of criticism on costing structures tied to its `twin towers` headquarters.

SOURCE: Guardian