Cut loan needs, industry told

Dar es Salaam. Faced with dwindling liquidity levels, commercial banks have asked manufacturers to reduce their loan requirements and align their operations with the prevailing conditions, The Citizen has learnt.

Members of the Confederation of Tanzania Industries (CTI) have been duly notified of commercial banks’ appeal to them to reduce their loan applications as the latter are facing liquidity challenges that make it difficult for the sector to satisfy manufacturers’ requirements.

“I don’t have the actual number of commercial banks that have pleaded with our members directly or with us as manufacturers’ apex body, but I can tell you is that they (commercial banks) have written to us about the situation and the need for our members to reduce the amount of loans they seek,” CTI chairman Samuel Nyantahe told The Citizen by telephone yesterday.

CTI vice chairman Jayesh Shah echoed similar sentiments.

Speaking to The Citizen by telephone from Nairobi, Mr Shah said on Tuesday that some commercial banks that face liquidity challenges have asked CTI members to reduce the size of credit they usually ask for.

CTI has about 450 members countrywide who engage in different manufacturing activities.

“Of course, I know that some banks are having liquidity challenges and they have asked us to reduce the amount of loans that we ask from them so they can be able to align their operations to the new realties,” Mr Shah told The Citizen.

With reduced credit, manufacturers are now being forced to either reduce production levels or find alternative sources of financing their operations, thus jeopardising implementation of the country’s industrialisation drive as envisioned in the Tanzania Second Five Year Development Plan (FYDP II).

This comes at a time when the Bank of Tanzania (BoT) is convening a two-day Conference of Financial Institutions starting today to discuss the financial sector and the economy as a whole.

Basically, the 36-year-old Conference of Financial Institutions is held biennially nut this year’s event comes at a time when BoT’s own reports that commercial banks’ credit to the private sector rose by a minimal Sh1.744 trillion during the year ending September 2016, lower that an increase of Sh2.936 trillion that was registered during the year ending September 2015.

The BoT’s Monthly Economic Review for October 2016 indicate that commercial banks’ credit to the manufacturing sector – which is at the epicentre of the industrialisation drive as envisioned in the FYDP II – is one of the few sectors that have been highly affected by commercial banks’ ‘wait-and-see lending approach’ as they (banks) seek to align their operations with the prevailing economic situation amid a tight liquidity stance.

The sector - which is only second to tourism in terms of contribution to Tanzania’s foreign exchange earnings – saw the rate of growth of credit to it going down to -7.9 per cent from 20.7 per cent that was recorded during the year ending September 2015.

Similarly, the rate of credit growth to Agriculture – which employs the highest number of Tanzania’s working age population – also fell to -8.7 per cent from 15.4 per cent that was recorded during the preceding year.

Tanzania seeks to become a middle income country by the year 2025, banking the hopes on industrialisation to be driven by the FYDP II which is to be implemented between financial years 2016/2017 to 2020/2021. The FYDP II requires a total of Sh107 trillion out of which the government will be required to collect Sh59 trillion, signalling that the remaining amount will have to come from the private sector and development partners.

Against this background, BoT said in a statement on Monday that its two-day Conference of Financial Institutions which starts in Arusha today will be graced by the Finance and Planning Minister, Dr Philip Mpango.

“The Conference of Financial Institutions is a forum created in 1980 under the auspices of the Bank of Tanzania for exchanging views and experiences on issues pertaining to the financial sector and the economy in general. The Conference is held biennially and brings together heads of financial institutions and other stakeholders,” reads the statement from the BoT’s Public Relations and Protocol Department.

Under the theme Harnessing Tanzania’s Geographical Advantage: The Role of the Financial Sector, BoT and heads of financial institutions will discuss eight topics including the challenges of Industrialisation in Tanzania and the pursuit of a manufacturing-based export-Led growth in the country. Other topic, lined up for deliberations include: Financial Development in Tanzania against the Challenges for Industrial Development and Job Creation; The Challenges of Industrialisation in Tanzania: A Comparative Perspective and the on Leveraging Transit Trade for Tanzania. Participants will also deliberate on the Accelerating Corridor Development for Rapid Economic Growth; Extending Tanzania’s Financial Frontiers: The Role of Technology and Extending Tanzania’s Financial Frontiers: Experience, Lessons and Way Forward.

Apart from a decision by the government to transfer up to Sh600 billion - held in commercial banks by ministries, public corporations and local government authorities – to the BoT thereby adversely affecting the liquidity positions, the level of loan defaults is also high in the market, forcing financial institutions to devise their business strategies.

Additional reporting by Alfred Zacharia