Effect of Treasury Single Account on Liquidity of Banks in Nigeria

Abstract

This study, effect of treasury single account (TSA) on liquidity of banks in Nigeria, was conducted in Nigeria. The adoption of TSA in Nigeria raised concern about its effect on bank’s liquidity because, before 2015, deposits of the ministries, departments and agencies (MDAs) of government contributed a significant proportion of banks’ liquidity. The specific objectives of this study were to evaluate the effect of TSA on the cash ratio, absolute liquidity ratio, liquidity coverage ratio and net working capital ratio of banks in Nigeria. The study adopted an ex-post facto design. Data were generated from the audited financial reports of the selected domestic systemically important banks (D-SIBs) in Nigeria from 2008-2014 (pre-TSA period) and 2015–2022 (post-TSA) period. Paired sample t-test was employed to analyze the data using Stata 14.2. The study found that TSA has a significant negative effect on absolute liquidity ratio; a non-significant negative effect on cash ratio and net working capital ratio; and statistically non-significant positive effect on the liquidity coverage ratio. These findings imply that Nigerian banks have not yet adjusted their liquidity management policies and strategies to cushion the negative economic externality effects of TSA adoption by the government on the banks. Therefore the study recommends efficiency in liquidity management, particularly investment of short-term assets and transferable assets to cushion the adverse effect of future liquidity distress.