BoT rule, election hangover haunt commercial banks

BUSINESS STANDARD Writer

BoT twin towers that house the central bank’s headquarters in Dar es Salaam.

MAJORITY of banks saw their profits dwindling, with some suffering losses in this year’s first quarter, although a handful of them posted marginal profit increase. The banking sector normally experiences a slow-start at the beginning of the year, but in this year, experts attribute the dismal performance to the general elections that restricted money in circulation.

The newly introduced regulation by the industry regulator—Bank of Tanzania—on apportioning of impairment losses on loans and advances to make the sector more vibrate could have had an impact on the quarterly financial statements of the banks.

According to Dhow Financials CEO Prof Mohammed Warsame, the regulation, adjusted on percentage for non-performing loans (NPLs) will keep the country’s banking sector strong. “Recognising and putting the NPLs in the bank’s book is generally good for the bank, country and investors,” Prof Warsame told ‘Daily News’ last year, describing the changes as “Very positive and will make the entire sector strong.”

Through the new regulation, the central bank wants commercial banks to set aside one per cent for every fresh loan approved until the borrower has made four settlements.

“So in the 2015 financial statements, every bank has to reposition its NPLs status as per new regulation,” a source in the banking sector told the Business Standard. In the period under review, the biggest bank in the country, CRDB saw its profit slightly slowing down by 1.05 per cent to 37.4bn/-.

The bank profitability was much affected by fund set aside for bad loans that more than doubled to 19.5bn/-, despite the bank generating more revenues.

The net interest income, for the bank climbed to 108.6bn/- from 82.6bn/- and non interest income rose to 45.2bn/- from 38.3bn/- in quarter one. National Bank of Commerce (NBC) also experienced profit decrease, with its gross profit decreasing to 2.4bn/- from 2.8bn/-.

The impairment on loses increased almost nine times to 3.14bn/- from a mere 442m/-, while NPLs stood at around 8.6 per cent, slightly higher than the previous 8.2 per cent. Barclays increased its bad debt fund three times to 6.8bn/- as its gross profit dipped to the red at 7.4bn/- from a profit of 1.18bn/- in same period last year. The NPLs dropped to 10.9 per cent from 11.1 per cent.

Citibank’s gross profit decreased to 7.1bn/- from 8.9bn/- despite setting zero fund for impairment loses in quarter one compared to 9m/- of similar quarter in 2015. Its NPLs, at 3.8 per cent, was below the sector benchmark of five percent.

TIB Development Bank Group posted a profit increase to 5.1bn/-, up from 3.5bn/- and cut down fund for bad debts to 2.5bn/- from 3.1bn/-. The financial results suggest that the banking sector was still clinging to the post general election hangover because records show that last year, many banks had their profits growing in line with money supply in the economy.

Usually the bank industry grows with money supply in the economy as banks are driven by deposits. However, every cloud has a silver lining. Some bank despite the rough water in Q1 posted a notable profit.

Finca Microfinance Bank, the first registered microfinance bank in Tanzania, posted a net profit of 695.6m/- up from a 24.3m/- loss, despite increasing its fund set for bad debts to 847.4m/- from 592.1m/- while NPLs stood at 4.8 per cent.

Diamond Trust Bank also posted a net profit of 5.8bn/- from 4.1bn/- and reduced impairment on loses for loans by over half to 795m/- from 1.7bn/-, maintaining its NPLs at 2.2 per cent.

Access Bank also made a good recovery and posted a net profit of 224m/- from the loss of 834m/- realised in Q1 last year and reduced fund for bad loans to 16m/- from 20m/-. Mkombozi Bank, a listed bank too made a profit coming back after posting 145m/- compared to a loss of 207m/- of similar quarter last year. Others are still on the red.

First National Bank reduced its loses to 1.9bn/- from 4.6bn/- despite increasing fund for bad debts to 682.6m/- from 238.1m/-. BoT changed the regulation on how to provide for impairment loans and advances, stipulating that one per cent of the loans be set aside for likely loan default. And the amount will be struck-off the book once a borrower paid four settlements.