As countries across Africa deal with the impacts of COVID-19, the Bank of Tanzania (BoT) has recently introduced the June 2020 Monetary Policy Statement which addresses a number of key concerns in Tanzania, including the impact of COVID-19 on non-performing loans (NPLs).
In this article we consider the actions the BoT has been taking to bolster the economy and the effectiveness of these actions. We also consider similar actions that have been taken in Kenya.
Actions taken by the BoT
In our article of March 2018, found here, we discussed the measures taken by the Bank of Tanzania (BoT) to reduce the number of NPLs. Briefly, as a result of a slow-down in private sector growth and the increasing number of NPLs, the BoT recommended minimum strategies and granted reliefs to assist in tackling the growing number of NPLs through the BoT Circular No. FA.178/461/01/02, found here.
While the impact of the Circular was evident in that NPLs declined from 11.1 percent in April 2019 to 10.7 percent in June 2019 and 9.8 percent in December 2019¹, the Monetary Policy Statement identifies that the ratio of NPLs to gross loans has increased to 11 percent in April 2020 following the outbreak of COVID-19. Certain sectors have been hit harder than others but it is anticipated that the monetary and fiscal measures the BoT introduced earlier this year, as discussed in our article here, will cushion the economy from the impacts of COVID-19 and reduce the risk of deterioration of loan portfolios. The various policy measures introduced by the BoT include lowering the statutory minimum reserves requirement, lowering the discount rates as well as providing regulatory flexibility on restructuring of loans.
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