BANK OF TANZANIA (BoT) CALLS BANKS CONFERENCE

Bank of Tanzania 

The conference for the Financial Institutions is held biennially, but this year’s meeting, scheduled to open on Thursday in Arusha, will take place at a time when the government is promoting industrialization and banks are taking a cautious approach to lending.

 Dar es Salaam. The Bank of Tanzania (BoT) has called a two-day meeting of financial institutions to discuss the financial sector and economy as a whole.

The Conference of Financial Institutions is held biennially, but this year’s meeting, scheduled to open on Thursday in Arusha, will take place at a time when the government is promoting industrialisation and banks are taking a cautious approach to lending.

BoT’s Monthly Economic Review for October 2016 indicates that credit to the private sector rose by Sh1.744 trillion during the year ending September 2016, well below an increase of Sh2.936 trillion registered during the year ending September 2015.

The manufacturing sector, which is the engine of the industrialisation drive as envisioned in the Tanzania Second Five Year Development Plan (FYDP II), is one of key areas that have been adversely affected by banks’ wait-and-see approach as financial institutions seek to align their operations with the prevailing economic situation amid tight liquidity. The sector – which is second to tourism in terms of foreign exchange earnings – saw credit fall by 7.9 per cent during the year ending September 2016.

Similarly, credit to agriculture – Tanzania’s biggest employer – shrank by 8.7 per cent during the same period.

Tanzania seeks to become a middle-income country by 2025, banking on industrialisation to be driven by FYDP II, which is to be implemented from 2016/17 to 2020/21. FYDP II requires a total of Sh107 trillion, out of which Sh59 trillion will come from government revenue with the remainder coming from the private sector and development partners.

BoT said in a statement yesterday that this week’s meeting would be opened by the Minister of Finance and Planning Minister, Dr Philip Mpango.

The theme of the conference is Harnessing Tanzania’s Geographical Advantage: The Role of the Financial Sector, and BoT and heads of financial institutions will discuss eight topics, including challenges of industrialisation in Tanzania and the pursuit of export-driven growth.

Other topics include financial development in Tanzania against industrial development and job creation challenges and the challenges of industrialisation in the country.

Participants will also discuss accelerating corridor development for rapid economic growth and extending Tanzania’s financial frontiers.

Apart from the decision by the government to transfer up to Sh600 billion from commercial banks to BoT, thereby adversely affecting liquidity, the level of defaults on loans has also increased, forcing financial institutions to revise their business strategies.

However, analysts are of the view that the existing scenario calls for more innovation by banks with a view to finding alternative ways of sourcing deposits instead of depending on “easy money”.

“What we have seen during the past few months clearly reflects the fact that commercial banks were not transparent enough in their dealings...they should now become innovative in sourcing deposits instead of relying on government securities,” Prof Delphin Rwegasira of the Economics Department of the University of Dar es Salaam told The Citizen recently.

He said, however, that the latest BoT figures were not enough give one a clear picture of the direction of the industrialisation agenda.

By being innovative, commercial banks will be expected to start raising their interest rates on fixed deposits so as to attract more cash from depositors which they may use to extend credit to the manufacturing sector.

The challenge, Prof Rwegasira said, was that commercial banks had been caught unaware by the government’s decision to become more transparent in its dealings.

“The crackdown on corruption and ghost workers means that shady deals through which some banks attracted hefty deposits are no longer available.”