Commercial bank deposit, lending interests decline

DAILY NEWS Reporter

COMMERCIAL banks’ interest rates, both deposits and lending, declined in the second month of this year, the Bank of Tanzania (BoT) has said in its latest report. The decline on the cost of borrowing enabled banks to lend more during the period under review, increasing broad money supply.

The March’s Monthly Economic Review released shows that during the period the total money supply grew by 17.1 per cent compared to 13.6 per cent of last February. BoT said: “The increase in money supply was mainly driven by increases in the net foreign assets of the banking system and banks’ credit to the private sector.”

The overall time deposit rate - average interest rate on deposits of various maturity spectrum - declined to an average of 8.6 per cent in February from 9.08 per cent in January.

“The February interest rates offered by banks generally declined compared with the preceding month,” the report says. Interest rate on 12-month deposits declined to 10.29 per cent from 11.01 per cent.

As regard to lending rates, the overall lending rate fell to an average of 15.83 per cent, from 16.28 per cent in January. Lending rates for short-term loans of up to one year also decreased to an average of 13.75 per cent in February from 14.34 per cent in the preceding month.

Reflecting a lower decline in deposit than lending rates, the spread between 12-month time deposit rate and one year lending rate widened marginally to 3.45 percentage points from 3.33 percentage points in January 2016.

The net foreign assets of the banking system grew by 19.7 per cent, significantly higher than growth of 5.4 per cent in the preceding year. “To a large extent,” BoT said, “This reflected sizeable foreign exchange accumulation by banks during the 2015, in an effort to hedge against rapid weakening of the shilling.”

However, following moderation and eventually stabilisation of the exchange rate since July 2015, the accumulated foreign exchange has been declining, albeit gradually. As for credit, government operations with the banking system resulted into a net borrowing of 763.4bn/-, significantly lower than 1,175.6bn/- at the end of last February.

This development was reflected in building of deposits from revenue and redemption of debt securities previously held by banks. The slowdown in net government borrowing provided room for credit to the private sector.