BoT issues new directive in fresh blow to loan defaulters

The Bank of Tanzania (BoT) has issued a new directive that will make it harder for habitual defaulters to acquire new loans.

According to BoT’s Monetary Policy Statement for February 2018, commercial banks, with high nonperforming loan (NPL) ratios have been directed to make full use of applicants’ credit reports during appraisals.

The central bank says it will continue to closely monitor banks with high NPL levels to make sure that they fall below the regulatory benchmark.

The policy statement published at the weekend says the quality of banking assets as measured by the ratio of NPLs to total gross loans fell to 11.7 per cent in December 2017 from 10.6 per cent in June 2017.

However, a comparison between the 2016 to 2017 calendar years shows that NPLs are actually on the decline as the banking industry started to shake off the effects of some decisions made during the past two years.

BoT has directed banks with high NPL ratios to formulate and implement strategies to reduce them to maximum of five per cent and introduced a mandatory requirement for all banks and financial institutions to make use of loan applicants’ credit reports in appraisals.

“The Bank of Tanzania will continue to monitor banks with high levels of non-performing loans (NPLs), and require all banks and financial institutions to effectively use credit reference bureau reports when carrying out credit appraisals,” the central bank says in its policy statement.

“Further, banks are required to ensure that the maximum limit set is achieved by ensuring that risk management practices in banking institutions continue to be improved.”

Generally, the statement indicates that the banking industry has maintained on average capital and liquidity levels above the regulatory requirements.

The ratio of core capital to total risk weighted assets was 18.9 per cent in December 2017, well above the minimum regulatory requirement of 10 per cent, while the ratio of liquid assets to demand liabilities was 40.3 per cent, above the minimum regulatory requirement of 20 per cent.

BoT last month issued a provisional licence to one bank to start operating in the country and revoked the licences of five community banks and placed them under liquidation following their failure to meet the minimum capital requirement of Sh2 billion.

During the same month, BoT issued a guidance note to banks for implementation of International Financial Reporting Standard 9 (IFRS 9).

The central bank also introduced the requirement for all banks to hold 2.5 per cent capital conservation buffer in addition to the minimum capital requirement ratios of 10 per cent and 12 per cent for core and total capital, respectively.

“Following the introduction of Capital Charge for Operational Risk and Capital Conservation Buffer of 2.5 per cent, and recent implementation of IFRS 9 with effect from January 2018, the Bank of Tanzania will continue to monitor and assess effects of these regulatory and supervisory changes in banks’ balance sheets and take appropriate measures,” BoT says.