HOPE FOR BANKS AS NEW YEAR BECKONS

MS. Ineke Bussemaker, CEO of NMB Bank Plc.

Dodoma. There may be light at the end of the tunnel for the banking industry after commercial banks endured two consecutive years of decline.

Analysis predict better performance in 2018 following a forgettable run in 2016 and 2017, thanks to a liquidity squeeze that prompted banks to slash lending to the private sector.

With tight liquidity in the economy, borrowers failed to honour their obligations, resulting in a spike in nonperforming loans (NPLs).

The NPL ratio had jumped to an average of 9.5 per cent by the end of last year from 6.4 per cent in 2015 against the acceptable threshold of five per cent. The NPL ratio is the ratio of the amount of nonperforming loans in a bank’s loan portfolio to the total amount of outstanding loans the bank holds.

The situation persisted through 2017, with financial results for the first nine months of the year showing increasing NPLs and declining profits among at least four of the country’s largest banks. Some banks blamed the situation on the government’s decision to dismiss 9,932 of the 435,000 workers on its payroll for allegedly possessing forged academic and professional certificates.

A significant number of the sacked workers, who were ordered to leave office by May 15 or face arrest and prosecution, had taken bank loans.

In response to rising NPLs, commercial banks took various internal measures that saw credit extended to the private sector grow by a measly 2.5 per cent in 2016 after expanding 26.8 per cent the previous year.

But bankers are now optimistic that the industry’s fortunes will improve next year after the government took a number of measures in response to hardships experienced in 2016 and 2017.

“I remain optimistic about 2018…2017 had a number of one-off events, for example the dismissal of government workers with fake certificates, which led to high NPLs. We do not expect those next year,” NMB Bank managing director Ineke Bussemaker told The Citizen.

Ms Bussemaker’s hopes were also anchored in the fact that a number of major infrastructure projects being undertaken by the government had taken off, raising the prospect of further economic growth.

Her CRDB Bank counterpart, Dr Charles Kimei, voiced similar sentiments, saying he hoped that 2018 would mark the beginning of the end of problems that had afflicted the industry in the last two years.

“People are now conversant with the system. Things have stabilised, and we should be able to issue loans as usual,” he said. In response to challenges the banking industry grappled with, the government moved to stimulate liquidity in the economy.

In April, the Bank of Tanzania (BoT) cut the minimum reserve ratio required of commercial lenders to eight per cent from 10 per cent in March. This was part of measures aimed at reducing borrowing costs and stimulating economic growth.

The change to the statutory minimum reserve requirement (SMR) followed BoT’s decision to slash its discount rate to 12 from 16 per cent. This was further lowered to nine per cent in August.

Analysts are of the view that the impact of the measures would be felt in 2018.

“I’m confident that things will improve tremendously in 2018 and I can predict that lending to the private sector will improve,” said Dhow Financial Limited chief executive Mohammed Warsame.

He added, however, that a major challenge banks would have to contend with in 2018 was the adoption of the International Financial Reporting Standard (IFRS-9).

The IFRS 9, which came into effect recently, require banks to recognise impairment sooner and estimate lifetime-expected losses against a wider spectrum of assets.

In so doing, the accounting system is expected to increase the stock of credit impairment provisions and affect profits among banks.

The Citizen