Commercial banks now want the Treasury to appoint them as collecting agents for its centralised account as they look to soften the blow of losing hundreds of billions of shillings in stable deposits from State agencies when the new system is rolled out.
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 choice of model will not disrupt their operations and those of the affected State agencies.
The lenders held Sh509.8 billion worth of deposits from government ministries, departments and agencies (MDAs) by the end of June 2023 as per the latest available official figures, raising the risk of a liquidity shock once the funds are moved to the single account.
The split between demand deposits (withdrawable at any time) and term deposits (fixed for a specified period) stood at Sh414.5 billion and Sh94.3 billion respectively, indicating that the MDAs are a significant source of cheaper deposits for banks.
KBA acting chief executive officer Raimond Molenje told the Business Daily that the association was in favour of a phased implementation of the single account plan and the proposed decentralised or hybrid TSA, which will allow MDAs to continue holding commercial bank accounts which are linked to a central account.
The Treasury expects the rollout of the TSA, which was approved by the Cabinet in January, to take three years.
The staggered implementation will allow for piloting of the system with a few MDAs, and ensuring that there is proper legal framework to support the shift, according to the KBA.
“By phased approach, we mean we first pilot some agencies in TSA so that we can study whether it’s working well before we roll out to everybody. That will assist us understand the impact on banks and the agencies,” said Mr Molenje.
“There is also a question of what is in it for banks, to see if they can act as collecting agents for government, and the consideration therein…whether in fees or an arrangement where they can be allowed to shift the money after two or three days so that the bank can be liquid for a couple of days before moving the money.”
The 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 cost implications of participating in the TSA, which will require them to upgrade their systems to enable linkage of the accounts of various government agencies, oversight bodies and the Treasury to allow for real-time payments between accounts and monitoring by Treasury officials.
The KBA said that it had also asked the Treasury for an inventory of the accounts held by its agencies to better assess the potential impact of the shift to the TSA.
The government started an audit last month to map out the bank accounts held by national and county government entities, marking the first step in setting up the TSA.
Full visibility
It is seeking to establish details such as the banks and branches hosting the accounts, the identity of signatories, balances and currency designation 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 at January 2023. While an individual bank would know the particulars of the accounts within its remit, such details are not available at the industry level.
For the government, the consolidated account will give it full visibility and control of public finances to improve the speed and transparency of budget execution.
In addition to efficiency in cash management, a TSA also cuts administrative costs for the government by eliminating the fees and charges associated with running multiple bank accounts.
Implementation of a TSA will also help the government deal with the problem of pending bills, given that agencies will be required to pay suppliers and contractors within 24 hours of receipt of funds from the Exchequer to eliminate idle cash in bank accounts.
