Commercial banks now want the Treasury to appoint them recovery agents for its centralized account, to soften the blow of losing hundreds of billions of shillings in stable deposits with state agencies when the new system is rolled out.
The banks, through their lobby, the Kenya Bankers Association (KBA), say they have started discussions with the Treasury and the Central Bank of Kenya (CBK) to ensure that the implementation of the Treasury Single Account (TSA ) and the choice of model will not disrupt their operations and those of the state agencies involved.
Lenders held deposits worth Sh509.8 billion with government ministries, departments and agencies (MDAs) at the end of June 2023, according to the latest official figures available, increasing the risk of a liquidity shock once the funds are transferred to the single account. .
The breakdown between demand deposits (withdrawable at any time) and term deposits (fixed for a fixed period) stood at Sh414.5 billion and Sh94.3 billion respectively, indicating that MDAs constitute an important source of cheaper deposits for banks.
Raimond Molenje, acting CEO of KBA, told the Business daily that the association was in favor of a phased implementation of the single account plan and the proposed decentralized or hybrid TSA, which will allow MDAs to continue to hold commercial bank accounts linked to a central account.
The Treasury expects the rollout of the CUT, approved by Cabinet in January, to take three years.
The staggered implementation will test the system with a few MDAs and ensure that there is an appropriate legal framework to support the change, according to the KBA.
“By phased approach, we mean testing some TSA agencies first so we can study how well it works before rolling it out to everyone. This will help us understand the impact on banks and agencies,” Mr Molenje said.
“There is also the question of what the banks can get out of it, whether they can act as debt collectors for the government, and the consideration for that… whether it’s in fees or in an arrangement according to which they may be allowed to transfer the money after two or three years. days so the bank can be liquid for a few days before moving the money.
Treasury’s hybrid model requires funds to be transferred to the primary TSA account at the end of each day.
Banks are also wary of the financial implications of participating in the CUT, which will require them to upgrade their systems to enable linking accounts from various government agencies, watchdogs and the Treasury to enable real-time payments between banks. accounts and monitoring by Treasury officials.
The KBA said it had also requested from Treasury an inventory of accounts held by its agencies to better assess the potential impact of the move to TSA.
The government launched an audit last month to identify bank accounts held by national and county government entities, marking the first step in implementing the TSA.
Total visibility
It seeks to establish details such as the banks and branches hosting the accounts, the identity of the signatories, the balances and currency of the accounts, the type of accounts and whether they are active or dormant.
According to the Treasury, public entities held more than 33,000 bank accounts in the local banking sector as of January 2023. Even if an individual bank knows the details of the accounts under its jurisdiction, these details are not available at the sector level.
For the government, the consolidated account will give it complete visibility and control over public finances to improve the speed and transparency of budget execution.
In addition to cash management efficiency, a TSA also reduces administrative costs for the government by eliminating fees and charges associated with managing multiple bank accounts.
The implementation of a TSA will also help the government resolve the issue of pending invoices, as agencies will be required to pay suppliers and contractors within 24 hours of receiving funds from the Exchequer in order to ‘eliminate unused cash in bank accounts.
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