BANK OF TANZANIA: CONCERN AS BAD LOANS SOAR

Dar es Salaam. Despite the fact that assets of the banking sector increased, their contribution to the economy slightly diminished in the year ending March 2014 as non-performing loans (NPL) increased.

Total assets increased by 12 per cent to Sh20.141 trillion during the year but as percentage of the Gross Domestic Product (GDP), the asset quality deteriorated from 40.2 to 37.9 per cent due to increased NPLs in the personal, trade, manufacturing and agricultural credit categories, according to Financial Stability Report released by the Bank of Tanzania.

The ratio of NPLs to gross loans increased to 8.3 per cent in March 2014 from 7.9 per cent recorded in the previous year, the report shows.

An expert in the banking industry says undisciplined borrowers who spend money in unproductive things coupled with poor growth in some sectors are giving banks hard time by failing to repay their loans timely.

Mr Hamis Mwakibete, head of trading at Commercial Bank of Africa (CBA) Tanzania says some borrowers in the industry sector for instance channel the money they borrowed for procuring production machinery to unproductive expenditure and therefore fail to repay the credit on time.

Increased NPLs influence the banks to review upward the level of the lending cost to recover their cost and minimize the risk.

“NPLs are not only hurting the banks but also the economy due to the fact that they make lenders increase the lending interest rates. They do so because of the risk,” says Mr Mwakibete.

However, the central bank said that the banking system remained profitable, adequately capitalized and liquid as reflected by some selected financial indicators.

On aggregate, for example, the industry Total Capital Adequacy Ratio was 19.4 per cent which was above the regulatory threshold of 10.0 per cent.

Return on Assets increased from 2.9 per cent to 3.0 per cent during the year while liquid asset ratio was 36.4 per cent compared to the regulatory requirement of 20.0 per cent.