Tanzanian banks pledge further cuts in interest rates

Dar/Dodoma. Tanzanians should expect a reduction in lending rates if the ongoing strategies between commercial banks and the Bank of Tanzania (BoT) are anything to go by.
Giving his remarks during the 20th Conference of Financial Institutions (COFI), the Tanzania Bankers Association (TBA) chairman, Mr Abdulmajid Nsekela, said lending interest rates would soon start going down, saying a number of issues were being deliberated between lenders and the BoT.
“President Samia Suluhu Hassan has continuously called upon banks to improve lending and reduce interest rates. The BoT has come up with a number of interventions for policy reforms that will see banks reducing interest rates soon,” he said during the conference that was themed: ‘Tanzania Economy: Recovery from Covid-19 Pandemic and Beyond’.
Debate on reduction of lending rates had been heightened during the past few months after BoT introduced in July some policy measures that were meant to lay a solid framework to increase liquidity and reduce the cost of lending to the private sector.
Among the measures, the BoT said it would introduce were a Sh1 trillion special loan fund for banks and other financial institutions to access money for lending to the private sector.
Speaking yesterday, Mr Nsekela, who doubles as managing director of the CRDB Bank Plc, said the banks have been doing simulation (coming up with statements on reducing various lending rates) - and will soon individually start to announce reduction of their interest rates.
He hailed BoT for taking measures to cushion the sector against the challenges caused by the viral Covid-19 pandemic.
He noted that the banking sub-sector has also put in efforts to improve its technology in order to reach more Tanzanians through digital products - adding that similar efforts had been made to ensure lending is extended to small-scale farmers.
He, however, noted that the sector was still grappling with high levels of Non-Performing Loans (NPLs), currently standing at Sh1.2 trillion.
The BoT Governor, Prof Florens Luoga, said that, to ensure sustainable economic growth, the banking sub-sector’s regulator has implemented a number of policies that aim to reduce loan interest rates, increase liquidity in banks and increase loans in the agriculture sector. The BoT was also sensitising on the use of digital payments, including a reduction of statutory minimum reserves.
As a result, he said, the banking sub-sector continues to be profitable and well-capitalised.
“The ratio for liquid assets-to-demand liabilities grew to 33.3 percent for 2020/21, compared to the required 20 percent. This means that banks had adequate liquidity to issue loans to the private sector,” he said.
Similarly, NPLs have gone down to 9.3 percent in June 2021, from 10.8 percent in June 2020. However, he said, BoT wants them to go down further: to five percent, even!
“Our hope is that the economy will grow fast to reach 8 percent in the next five years- and the estimates are as a result of growth in use of resources and productivity,” he said.
“It is our hope that banks and other financial institutions will support us to reduce loan interest rates. That is why we will be discussing a topic on scaling up private sector credit beyond the Covid-19 pandemic, responsibilities of the government, financial institutions and the private sector.
He said the BoT has come up with the Tanzania Instant Payment System (TIPS) aimed at reducing the cost of digital payments that was completed in July 2021 and is currently at its trials stage.
On digital currency, the central bank Governor said BoT has come up with Central Bank Digital currency (crypto-currency) for private sector which would ensure that Tanzania moves with the rest of the world in the technology.
Gracing the event, President Samia Suluhu Hassan said proper private sector growth was dependent on adequate and affordable loans from the banking sub-sector.
“In June this year, I touched on the issue of interest rates, and directed BoT to reduce lending rates - which they have worked on,” she said.
Also, TBA revealed that they expect to reduce their lending rates soon to further enable the private sector to borrow and implement development projects.
The President said she was curious about the performance of government securities market summary auction results which indicate a substantial increase in over-subscriptions in governmental securities.
She noted that the major players were financial institutions. But, while it was not for them to participate in financing government budget, the over-subscriptions show that they have enough liquidity that can also be directed to lending the private sector. But, this is not happening - and, as a result, lending continues to be low: at an annual growth of 4.3 percent, which is not healthy.