Treasury Single Account Implementation to Affect Profitability of NBP and Askari Bank: Report

The Treasury Single Account (TSA) implementation will likely affect the profitability of the National Bank of Pakistan (NBP) and Askari Bank (AKBL).

According to a report by Topline Securities, the process of transfer of funds to TSA account will only apply to Federal government and Public Sector Entity deposits initially where National Bank of Pakistan (NBP) and Askari Bank (AKBL) will be key losers as their total holding of government deposits constitute around 40 percent of their total deposits, out of which 50-60 percent are estimated to be Federal Government deposits.

This may get implemented in at least 2-3 years given the size of the deposits, and it may impact NBP and AKBL bottom-line the most. On other hand, the Bank of Khyber (BOK) and the Bank of Punjab (BOP) have deposits in the Provincial government predominately which may be less impacted, said the report.

Ministry of Finance has barred all Public Sector Entities (PSEs) and autonomous bodies working under the Federal government from depositing surplus funds in private banks as per recent news reports. This indicates that the second phase of Treasury Single Account (TSA) implementation has started.

TSA is a financial policy tool used by countries to consolidate all government cash resources in a single bank account maintained with the central bank. The aim of establishing TSA is to enable the government to better manage its cash resources and reduce borrowing costs.

In the first phase of TSA implementation which was carried out in 2021, Federal government accounts that were dormant or had zero balance were partially closed but now the implementation of the same will also apply to other accounts in a phased manner.

As per the State Bank of Pakistan (SBP), the Federal government and Public Sector Institution deposits constitute around 16 percent of total deposits of the banking sector (May 2022), hence its gradual transfer of funds will be ensured so it does not become a systematic risk, read the report. The exact timeline for the complete transfer of funds to TSA has also not yet been communicated to banks by SBP.

Implementation of TSA has remained a key demand by the International Monetary Fund (IMF) over the years for Pakistan, which has been delayed for many years. Since it is a key policy tool toward fiscal consolidation, the IMF will again press Pakistan to get it implemented in its ongoing negotiation for the revival of its $6 billion bailout program.