Global economic Crisis: Government steps in rescue bank The Citizen By Damas Kanyabwoya and Mkinga Mkinga Senior Bank of Tanzania (BoT) and ministry of Finance officials met in Dar es Salaam yesterday to discuss a special rescue plan for local banks reeling from the effects of the global financial crisis. The meeting follows an earlier assurance by the minister for Finance and Economic Affairs, Mr Mustafa Mkulo, that the government was considering a stimulus plan for the banks to cushion them against the adverse impact of the economic meltdown. A high-ranking government official, who attended the meeting, told The Citizen that the Government would soon let the banks know details of the decisions reached at yesterday's meeting. He said the government had decided to seriously address the problem, following reports from some of the banks, including CRDB Bank, that their trade finance borrowers were having difficulties repaying their loans. But in a statement released yesterday, the bank allayed fears of an imminent credit crisis, saying it would not incur any losses, as it has "exceptional expertise in managing risks in agricultural sector financing". The statement added: "CRDB Bank would like to assure all the shareholders, customers and other stakeholders that the Bank is in a healthy and sound financial position." However, the bank conceded that the sharp decline in crop prices in the global market had adversely affected some of its clients. Some could not sell their crops and clear their debts by March. This, the bank said, was not peculiar to CRDB Bank, as it had also affected the clients of the other banks. But the bank said the situation had improved from last month, as crop prices started picking up. This enabled clients, whose loans had stalled, to start repaying the debts. Experts have warned, however, that the plan to rescue banks is an indication that the situation is precarious and that more banks risk serious consequences in the medium and long term. An economics lecturer at Mzumbe University, Dr Honest Ngowi, warned in an interview with The Citizen in Dar es Salaam yesterday that a full-blown liquidity crisis in the local banking sector would occur in the next six months should the global crisis persist and the government fails to react. He said the local banks could not escape the consequences of the global meltdown, which started as a financial crisis in the United States and Europe, as exports had dramatically declined. "Exports have decreased across the board, from agricultural products to fish and tourism. It is obvious that some clients might fail to repay their loans leading to a liquidity crunch," he said. The World Bank Group and several other partners have joined the G-20 countries to fix the problem of financing trade in poor countries with the Global Trade Liquidity Programme support of up to $50 billion in trade. Tanzania will this month benefit from initiative, with funds to be disbursed through Stanbic Bank and Standard Chartered. The World Bank says that the facility has been set up because companies are having trouble getting loans from banks to keep shipping their goods to markets. "We were chosen because of our footprint, financial strength and expertise in this field. This is not a stimulus package and nor is it to support us. Standard Bank will get $400 million from the IFC to boost trade in Africa," the head of marketing and corporate affairs at Stanbic Bank Tanzania said yesterday. The world market price of cotton lint has risen to $57.7 cents a pound, while that of coffee has increased to $1.52 a kilogramme for Robusta and $2.5 a kilogramme for Arabica this month, CRDB Bank says. The bank said it would not incur any losses over the money lent to crop traders because the loans had been secured by various properties. "CRDB Bank wants the public and stakeholders to know that clients are now selling their stocks at the prevailing market prices, which are better, compared to the November 2008 � March 2009 price levels. Most clients are reducing their outstanding loans as compared to the March 2009 position and will be in a position to repay larger portions, if not all, of their debts," the bank said. The bank disbursed about Sh271 billion as loans to crop buyers last season. But by March, only 38 per cent on average or Sh103 billion had been repaid. The bank was convinced that the crisis was only temporary and would not result in catastrophic effects for the local financial institutions. And that it said it would continue to support its customers, including those in the agricultural sector. The banks' rescue plan has been on the cards for some time though the amount to be committed has yet to be disclosed. The BoT Governor, Prof Benno Ndulu, said in February that the central bank was not ready to announce a stimulus package for banks to avert the possibility of some seeking its help even though they were financially sound. But donors have pledged to contribute funds to such a rescue plan. World Bank country director John McIntire told reporters in Dar es Salaam last month that they would be willing to support such a rescue plan. "We understand there is a rescue package underway for banks that might lose money due to the financial crisis. We want to assure the Government that we will be in a position to help if called upon to do so," he had said. Yesterday, university don Ngowi advised that in order to avoid a sudden liquidity crisis, the BoT should put in place a "stress test". This would require banks to report on their soundness periodically, as happened in Europe after banks started collapsing early this year. "The stress test helps banks to make their own assessment of how long they can continue with the business-as-usual situation despite the crisis," he said. Naona credit crunch inatufikia finally despite the intial dismissal by the govenrment in December. Hii avalanche iki-hit home sijui tutasalimika, maana serikali yetu haina uwezo mkubwa wa ku-prop up banks. Na kwa misaada hii there is only that much that can be done.