BORROWERS WAITING FOR CHEAPER LOANS

Central bank governor Florens Luoga

In Summary

• The policy, which has been implemented for more than a year now, aims at ensuring that there is adequate liquidity within the banking industry to support growth of credit to the private sector.

Dar es Salaam. Despite the Bank of Tanzania (BoT) touting an “accommodative monetary policy”, recent reports have revealed that lending rates are actually going up.

The policy, which has been implemented for more than a year now, aims at ensuring that there is adequate liquidity within the banking industry to support growth of credit to the private sector.

Reports have shown that borrowers are currently paying interest ranging from 21 per cent to 30 per cent per annum on their loans.

According to BoT monthly economic reviews, interest rates charged on loans and those offered on deposits by banks increased slightly during the quarter ending December 2017 compared with the corresponding quarter in 2016.

The BoT monthly economic review for February shows that the overall lending rate averaged 18.18 per cent compared with 16.01 per cent in January 2017, translating into an increase of more than 10 per cent.

This trend goes against the government’s plans to scale down cost of borrowing, which limits credit growth to the financially-starved private sector.

The BoT review shows that the one-year lending rate slightly increased to 18.30 percent in January, this year, from 14.16 per cent in January 2017, which is a growth of nearly 20 per cent.

The BoT’s quarterly economic bulletin for the quarter ending in December 2017 also reported the rise of the lending rate, saying it grew somewhat faster than that of deposits to an average of 17.78 per cent in fourth quarter from 15.69 per cent recorded during the corresponding period in 2016.

“The increase of lending rates among commercial banks is a result of rising risk premium following an increase of nonperforming loans (NLPs), which causes deterioration of banking assets,” the bulletin says.

NPLs have increased to more than ten per cent, which is double the industrial benchmark of five per cent. Bankers say they have been more cautious in lending to private sector because of changing economic policies that limit the expansionary trend of the economy.

“The central bank’s initiatives are just a single concept...there are so many other issues that we consider before reducing lending rates,” NMB Bank chief executive Ineke Bussemaker told The Citizen.

She mentioned high lending risks, NPLs, operational costs and capital woes as the other constraints.

“We are happy that the government, through the central bank, is doing good job to see that lending to the private sector is easy and affordable, but there are some other bottlenecks which need to be addressed,” she said.

Ms Bussemaker added that it is too risky to issue a low-interest loan to a borrower when the possibility of returning the cash is not well guaranteed.

“Many banks now prefer to give loans for government projects since the return of the money is guaranteed,” she said, adding that banks were currently issuing short-term loans which are mostly characterised by high interest rates.

Another source from the banking industry said although there was an improvement of economic activities which might stimulate economic growth in future, credit market would remain tight.

There has been a slight increase in credit to the private sector, but its growth is still low as banks remain sceptical about the financial stability of borrowers in a slowing economy.

Reports have shown the credit market has started to grow in only some selected sectors of the economy.

Additional reporting by Alfred Zacharia.

The Citizen