Bad loans fall as recovery continues

Dar es Salaam. The level of bad loans in Tanzania’s banking system has continued to drop steadily, albeit marginally.

This comes at a time when credit markets continue to recover after months of contractions.

Finance and Planning Minister Phillip Mpango revealed this yesterday when speaking to journalists in Dodoma on the state of the economy during the first-half of the 2018/19 financial year.

Dr Mpango said the level of nonperforming loans (NPLs) dropped to 9.7 per cent in September 2018 compared to 12.5 per cent as recorded in December 2017. However, the rate is still higher than the regulatory benchmark of five per cent, as set in accordance with the 2018/19 monetary policy objectives of the Bank of Tanzania (BoT).

The central bank’s report reveals that the country experienced the highest rate of bad loans due to a shutdown of economic activities as the government was implementing stringent economic reforms.

The other factor which increased the number of bad loans in the banking system was the exercise to weed out public employees with forged certificates, which resulted in the loss of 10,000 workers, some of whom were borrowers.

Dr Mpango explained that, following regular interventions by BoT, there have been improvements in credit issuance.

Banks have also revisited their lending policies and practices, including closely scrutinizing prospective borrowers before lending out.

“Banking industry operations have improved, with capital and liquidity ratios remaining higher than regulatory benchmarks: enough to pay debts and issue loans,” Dr Mpango said – adding that banks capital, compared to the proportion of resources, stands at 16.5 per cent as against the regulatory requirement of 10.0 per cent.

“The proportion of the exchange rate compared to the deposit rate required for short periods is 36 per cent compared to the regulatory requirement of 20 per cent,” the minister further stated.

Monetary policy

Noting that BoT has been implementing an accommodative monetary policy to increase liquidity and expand credit market, Dr Mpango revealed some of the measures taken under the policy as the issuing of short-term loans to banks; selling foreign currencies; reducing discount rates, as well as reducing the rates for government debt instruments. In the event, loans to the private sector grew to 6.4 per cent between July and October 2018, up from a measly 0.2 per cent in the same period in 2017.

Bureaux de Change

Dr Mpango said BoT also initiated various interventions to strengthen the foreign exchange market, and minimize its chances of being contaminated by illicit financial flows.

A thorough crackdown against illegally-operating bureaux de change was successfully carried out in Arusha Region recently.

In June last year, BoT reviewed its bureaux de change regulations which required a Class-A licencee to have a capital of between Sh100 million and Sh300 million, while Class-B licence was graded at a capital requirement of between Sh250 million and Sh1 billion.

“Following the review, the government had to shut down at least 188 bureaux de change that failed to meet the requirement, and remained with only 109 bureaux that are operating,” he said.

Exports and Imports

He explained that the value of traditional and non-traditional exports during the period July to November 2018 stood at $1,939.2 million, compared with $2,094.3 million in the same period of 2017.

On imports, the minister said there was a slight increase of $3,483.4 million in the period July to November 2018 compared to $3,310.1 million in the same period of 2017.

The current account deficit increased to $701.0 million in 2018, up from $580.4 million in 2017.

GDP

According to Dr Mpango, Tanzania’s economic situation has remained stable, growing at 7.1 per cent in 2017, compared to 7.0 per cent in the two previous years.

Explaining this, he said Tanzania was leading in annual economic growth within the East African Community (EAC) by 7.1 per cent, compared to Rwanda (6.1 percent); Uganda (5.1 per cent); Kenya (4.9 per cent), and Burundi: 0.0 per cent.

“From January to June 2018 this year, GDP grew at 7 per cent compared to 6.3 per cent in the same period last year.

In that regard, he mentioned the sectors that are growing at a relatively high rate as including works (15.7 per cent); industrial production (12.0 per cent) and information and communications (11.2 per cent).