Banks hit by public entities’ withdrawal of Sh500bn

Dar es Salaam. The decision by government for its institutions to transfer their money to the central bank has started biting in the financial industry as the level of customer deposits has started decreasing slightly.

In January this year, the government ordered ministries, public corporations and local government authorities to immediately transfer their money to the Bank of Tanzania (BoT), a move that was estimated to mop Sh500 billion out of the commercial banks. Looking at the financial statements for the first six months of 2016, most banks experienced decrease in deposits at the end of June compared to the levels recorded in March.

Analysts and bankers who spoke with BusinessWeek associate the trend with the government decision to pull out its deposits and others add that there is a sort of uncertainty among the investors since the new government came into power.

 “There are tough market conditions but the main reason is the government decision to transfer its money to BoT. That decision really affected the market liquidity,” said a banker who did not want to be quoted here. “The market is currently so unpredictable that every day is a new day. A bank may be improving deposits today due to its efforts but not sure of improving the next quarter,” said the seasoned banker.

Commercial banks primarily extend loans and fund their activities through customer deposits.

Decreasing deposits will force them to become more aggressive including raising the deposit interest rates to attract more customers.

This analysis covered financial statements of ten largest banks by assets including CRDB, NMB, NBC, Stanbic, Standard Chartered, Barclays, Bank M, DTB, Exim and TIB Development Bank.

Citibank could not be included as its financials were still not available during the analysis. The total deposits for the ten banks reduced by 1.79 per cent in the second quarter.

However, some industry players say the general industry fall of deposits for the last three months was about 20 per cent.

“Currently there are less manufacturing and importation due to increased taxes. On top of that, Tanzania is facing a sort of political panic among investors which brings uncertainty in depositing their money locally,” says another banker who did not want his name to appear in the newspaper.

“Some investors who are also big depositors are still assessing the trend of the current administration before they decide. All these are affecting the cash flow in the market,” he adds.

In the list of top ten largest commercial banks by assets, only two of them – Bank M and the National Bank of Commerce (NBC) – had improved their deposits between March and June while the rest experienced slight decline.

The two successful banks could not comment but an employee with one of them said they were working day and night looking for deposits.

“We are working hard like Machingas (hawkers) in the streets now to get deposits,” said the source who sought anonymity.

Economic impact

Tanzania has over 50 banks but 70 per cent of the market is dominated by the 10 largest banks in terms of assets, deposits and gross loans.

Since the government decided to transfer deposits of its entities, the banks which are mostly concentrated in commercial cities of Dar es Salaam, Arusha and Mwanza have been competing for individual customer deposits and fill their gaps through interbank money markets which allow borrowing between them.

The interbank rates have remained at double digits since March 24 to an average of 16.11 per cent recorded on August 5, 2016, according to the central bank data.

“I am in the industry and actually we are feeling drop in deposits. Banks are becoming less liquid and that will force them to become more aggressive in search for deposits,” says Prof Delphin Rwegasira from the University of Dar es Salaam’s economics department.

“Banks are increasing competition for the deposits and that may result into higher cost of fund (deposit rates) that will also be reflected in the lending interest rates.

“The situation may also constrain the banks’ profitability levels especially in the quarterly results. However, this is a short-term situation and in the long run it will come back to normal,” he adds.

Government spending is said to have much influence in the banking liquidity. Once contractors and suppliers are paid, the banks become more liquid, the experts say.

“The liquidity squeeze is largely due to government directive to transfer its institutions’ money to the BoT and of course the measures taken to cut cost,” says Prof Mohamed Warsame, chief executive officer of Dhow Financial, an independent consultancy firm.

“So, going forward the size of liquidity will depend much on the government spending in infrastructure, water and other projects,” adds Prof Warsame.

Profitability

The fall of deposits did not lead the banks into loss. Out of the 10 banks, only three of them recorded loss in the second quarter.

Barclays Bank Tanzania recorded the largest loss after tax at Sh8.02 billion in the six months to June followed by TIB Development Bank at Sh6.27 and Stanbic Bank Tanzania at Sh2.40 billion.