Earnings from forex trade dive as Covid-19 bites

Dar es Salaam. The glass is almost half-empty of revenues from foreign currency trading among the banks in Tanzania which remain uncertain of 2020 developments amid the adverse impact of the coronavirus pandemic.

An analysis of first quarter financial statements from 10 first-tier banks  banks with assets of not less than Sh1 trillion  indicated that earnings from foreign currency dealings dropped significantly during the first quarter (Q-1/2020).

This income stream (foreign exchange dealings) had been the fastest growing one for the past one year.

The momentous growth of the stream was evident last year when it started with the closure of bureaux de change towards the end of 2018 and in early 2019.

However, in a drastic turn of events, all the ten lenders reduced their combined earnings from forex exchange dealings from Sh64.68 billion in the first three months of 2019 to Sh37.15 billion at the end of the first quarter of 2020, according to their statements.

The analysed banks were CRDB Bank, NMB Bank, National Bank of Commerce (NBC), Stanbic Bank, Standard Chartered, Absa, Diamond Trust Bank, Exim Bank, Azania Bank and Citi Bank.

At the end of 2018, the central bank started cracking down on bureaux de change for what the regulator said most were flouting procedural and other regulatory frame-works governing the currency exchange business.

The government suspected dubious dealings and money laundering through the private dealers  and were closed.

The banks had since rushed into providing foreign cur-rency exchange, seeking to utilize the opportunity brought by closure of the bureaux.Last year, the Bank of Tanzania introduced new guide-lines for the money trading centres, including a demand for capital of at least Sh1 billion - up from Sh300 million previously.

The moves resulted in a drop in the number of dealers from 110 in May 2018 to only five in December 2019.

The banks say their performance for the first quarter was generally good  but fear that their future may be affected by the impact of the coronavirus which had infected 509 people and killed 21.“NMB Bank has achieved excellent results in the first quarter of 2020, with 13 percent growth in total operating income,” said NMB Bank acting managing director, Ruth Zaipuna.

However, she worries about future performance which may be badly affected by the impact of the coronavirus.

“In the light of the ongoing Covid-19 pandemic, manage-ment anticipates increased impairment pressure on the loans book, and efforts are currently centred on customer engagements and recalibration of the 2020 strategy with a view to minimizing the anticipated impact,” she added.

Experts share similar sentiments.

A Mzumbe University economist, Prof Honest Ngowi, said the drop in foreign currency trading profits coincide with the coronavirus outbreak that affected travel and tourism activities and also wreaked havoc with imports and exports.

“I see the banks recording high rates of non-performing loans (NPLs), as borrowers are affected by Covid-19,” said Prof Ngowi.

“Some borrowers will definitely ask for rescheduling of loans repayment, and profits will also drop. I think 2020 will be a struggling year for the banking sector,” he added.

For Prof Delphin Rwegasira of the University of Dar es Salaam’s Economics Department, performance of the banking sector will mostly depend on government policy to revive the economy after the coronavirus pandemic.

“Some travel and tourism activities, employment and education have been depressed by Covid-19, and I believe the government will come up with a recovery vision for the economy,” said Prof Rwegasira.

He also believes that Tanzania will secure support from the International Monetary Fund (IMF) to strengthen the recovery plan.“So, performance of the banks will depend on the recovery policy to be adopted,” he added.