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Banks face recent hit from parastatals’ idle money ban

Kenya’s parastatals have been banned from holding idle money in financial institution accounts below a brand new public finance reform plan searching for to reinforce transparency and effectivity in using public assets.

Treasury Cupboard Secretary Njuguna Ndung’u disclosed that the exchequer has formally adopted a hybrid mannequin of a single account the place ministries and State departments (MDAs) will function accounts on the Central Financial institution of Kenya (CBK) whereas the accounts of the semi-autonomous companies will stay in business banks provided that no idle money will likely be stored in these accounts.

“The Nationwide Treasury has adopted the hybrid mannequin of Treasury Single Account (TSA) the place accounts are in Central financial institution of Kenya for ministries and State departments whereas the accounts for SAGAs [semi-autonomous State agencies] are retained business banks however the Nationwide Treasury will likely be given visibility to observe the balances and guarantee no idle money is retained by public entities,” Prof Ndung’u disclosed within the estimates for the 2023/2024 fiscal yr signed on April 30, 2024.

“Within the meantime, the Nationwide Treasury is taking inventory of the SAGAs financial institution accounts in business banks.”

Most authorities accounts in business banks are owned by State companies and SAGAs such because the Kenya City Roads Authority (Kura), the Kenya Nationwide Highways Authority (KeNHA) and the Kenya Rural Roads Authority (KeRRA).

Ministries, departments and companies however largely financial institution with the CBK.

President William Ruto mentioned at the start of this yr that curiosity earned on authorities deposits in business banks belongs to taxpayers and “not just a few people.”

Eradicating an enormous chunk of presidency deposits from business banks is prone to scale back the funding and liquidity of a number of the lenders.

Treasury information exhibits that the KeRRA accounts for 13.89 % (Sh27.93 billion or $206 million) of the idle money held by State companies in business banks as at December 2023, making it probably the most cash-rich parastatal within the nation.

In whole the 177 parastatals listed by the Treasury held Sh201.05 billion ($1.5 billion) in banks in the course of the interval, with these within the power and infrastructure sectors notably having the healthiest financial institution balances.

Massive banks maintain the lion’s share of the general public funds and stand to face the best hit on lack of deposits.

In keeping with the Treasury, bankers have already been ready for the approaching withdrawal of presidency deposits.

“Sure, they (banks) can’t be comfy. Ultimately, the federal government will transfer vital balances from them. They’ve been sensitized to organize and regulate to this actuality finally,” mentioned Bernard Ndungu, the director-general in control of accounting companies and high quality assurance on the Treasury, in an earlier interview.

Photograph credit score: Design by Chrispus Bargorett

“However it’s not true that each one the accounts in business banks will likely be closed. Public entities will proceed to carry operational accounts in business banks, however all of the idle funds and deposits will likely be held at CBK.”

East African Neighborhood (EAC) accomplice states in 2018 agreed to shut a number of financial institution accounts operated by their ministries, departments and companies and preserve their revenues in a single account every as a part of efforts to extend transparency and accountability in using public funds.

The accomplice states agreed on the Treasury Single Account (TSA) to make sure correct oversight of presidency money flows and to cut back the price of retaining public cash in a number of business banks.

Kenya is shifting sooner on this entrance, with the Public Finance (Administration and Administration) Laws 2013, setting the stage for the creation of a single authorities account.

The piloting of the preliminary section involving the MDAs is presently ongoing. The second section entails counties and the third section entails State companies and SAGAs. The complete implementation of the TSA is anticipated to occur inside a three-year interval.

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