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Banks feel the pinch as businesses of their depositors, borrowers fall

Discussion in 'Biashara, Uchumi na Ujasiriamali' started by Mdondoaji, Aug 11, 2011.

  1. M

    Mdondoaji JF-Expert Member

    Aug 11, 2011
    Joined: Mar 17, 2009
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    HE fall in production for many a corporate institution in both industry, agriculture and other major sectors of the economy in Tanzania as caused by an assortment of problems is already adversely impacting the country's banking sub-sector.

    Bankers are deeply worried that the economic consequences of the continuing setbacks are bound to play havoc with the ability of borrowers to repay their loans at both the corporate and individual levels.

    The setbacks include – but are not limited to – persistent drought, severe electricity shortages, rising prices of fuel, food and other basic necessities, as well as the imminent problems apparently sparked by the controversial fuel prices set by the Government this week!

    These negative developments are also ruining the ability of depositors to increase their bank savings, a thing that could boost banks' liquidity no end.

    Some players in the industrial sector have already closed some or all of their operations. This – compounded by the fact that farmers and other players in the agriculture sector have also been badly affected by drought – puts the banking sub-sector in a very difficult position to mobilize savings.

    Furthermore, the economic uncertainties and spillover effects of the global economic crisis which plagued national economies in 2008-2010 are still a major threat to banking in Tanzania – and the world over in general.

    According to the June 2011 Monetary Policy Statement issued recently by the central Bank of Tanzania (BoT), the quality of assets in the banking system deteriorated. This is reflected by the ratio of non-performing loans (NPL) to total capital, which increased to 24.6 per cent, from the 15.5 per cent recorded at the end of March 2010!

    The ratio of NPL to total loans also increased to 9.5 per cent at the end of March 2011, up from the 7.0 per cent recorded at the end of March 2010. This was mainly due to the delayed effect of the global financial crisis.

    The Bank of Tanzania says it has tightened further its oversight over credit administration in banks, in order to mitigate further deterioration in the quality of banks’ portfolios.

    “We consider this year as bad for the banking sector,” said Edmund Mkwawa, managing director of the Dar es Salaam Community Bank, which is listed with the Dar es Salaam stock Exchange (DSE).

    “If industrialists close their operations, and drought is affecting farmers’ economies, then the propensity of savings will fall.”

    Also commenting on the matter, a loans officer with the Mkombozi Bank in Dar es Salaam, Asanterabi Lota, said “we are experiencing the delays of loan repayment at this time mainly due to the expensive imports, power shortages...

    “I think these problems – coupled with the depreciation of the local currency and high inflation – really adds pains to banking. The others are just common problems.”

    Speaking to Business Times in an interview, Lota said traders were already complaining over the bad economic environment that has reduced their ability to repay their loans.

    The Mkombozi is nascent in banking. It is mainly involved in providing loans and mobilizing savings for low and middle income earners, as well as salaried employees.

    “Traders who are our clients are saying the rate of consumption is slowing, and this affects their incomes. It reduces their ability to repay loans,” Lota said in a telephone interview yesterday.

    According to the BoT's Monthly Economic Review for June this year, credit to the private sector grew by 24.6 per cent in the year that ended May 2011, compared with 20.4 per cent and 13.7 per cent recorded in the years which ended April 2011 and May 2010 respectively.

    Banks credit to major economic activities continued to grow, driven by higher growth in trade activities, building and construction, as well as hotels and restaurants.

    As a proportion of total outstanding credit, personal loans continued to account for the largest share, followed by trade; manufacturing; agriculture, and transport and communication activities.

    This is happening while the Bank of Tanzania is continuing to lower interest rates for its short-term and medium-term securities – situation that has also lowered banking yields!

    Tanzania's banking sub-sector is the main investor in government securities and the fall in interest rates is a ‘slap’ in the face of their cash flows, so to say!

    Another banking official who spoke to this paper on condition of anonymity said non-performing loans (NPLs) have been reduced to some extent; but the area of trade finance is still a major challenge.

    “We have some cases whereby companies have cut back the number of jobs, or closed their operations. This has affected the inflow of loan repayments,” he said.

    The fluctuation of the local currency against the US dollar, as well as the newly arising issue of fuel prices, add uncertainty to banking portfolios – mainly those involved with trade finance.

    “We know that the purchasing power among Tanzanians is falling due to relentless depreciation of the shilling. This is affecting the incomes of importers who mostly access banking finance,” said a credit officer.

    According to the National Bureau of Statistics, headline inflation hit double digits in June, while the purchasing power of a 100 Tanzania shillings has declined to Tsh86.54 from September 2010 to June, 2011!

    Source: Business Times.

    My take:
    Makusanyo ya kodi yanashuka, mfumuko wa bei unakimbia, thamani ya shilingi inaporomoka, balance of trade deficit inaongezeka, wenye viwanda wanafunga. Vyote kwasababu ya kukosekana nishati ya uhakika na mafuta. Sasa wakopaji wanapungua na kubakia serikali ndio mkopaji mkuu, deposits zinapungua, wadaiwa sugu wanaongezeka. Are we heading towards the coffin???