BANK OF TANZANIA (BoT)
By Mnaku Mbani
Dar
es Salaam — The Bank of Tanzania (BoT) has published new measures which
are aimed at increasing bank lending to the private sector - but doing
so at a time when the banks have been directed to contain escalating
Non-Performing Loans (NPLs). The measures are intended to improve
growth
of credit, which contracted last year from the highest growth rate of
24 per cent in early 2016.
NPLs have remained a
major challenge to the banking sub-sector of the wider financial sector
- reaching 11 per cent as of December last year. That was double the
current regulatory requirement.
Among other things,
the new BoT measures will have created relief for existing borrowers
who have a good track record - but who failed to service their loans due
to effects of economic trends.
For prospective
borrowers, however, things are a bit difficult, as they are now required
to 'pass through' stringent vetting processes before they can get loans
from the banks operating in the country.
Through the new
measures, the central bank has waived four provisions in the Banking and
Financial Institutions (Management of Risk Assets) Regulations-2014
(2014 BFI-MRA Regulations), while at the same time calling upon banks to
formulate strategies that are intended to contain the rising
non-performing loans rate.
In his communique
addressed to the banks and financial institutions, the BoT deputy
governor responsible for Financial Stability and Deepening, Dr Benard
Kibesse, also requires the banks to report on a quarterly basis how they
are increasing lending to the private sector even as they reduce NPLs.
Dated February 19,
2018, the communique states that the central bank has finally
appreciated the economic consequences that are caused by low growth of
credits and rising NPLs.
"Banks and (other)
financial institutions are directed to develop and implement specific
strategies aimed at improving credit granting processes, and reversing
the NPLs trend," the communique reads in part. The letter goes on to say
that "every bank and financial institution is required to ensure that
no new NPLs are generated by failure to follow robust credit granting
and management processes."
The central bank
has also announced some regulatory measures and reliefs that are
intended to provide more space for banks and other financial
institutions to advance more credit to various sectors of the economy,
while managing risks emanating from lending.
According to
circular number FA.178/461/01/02 dated February 19, 2018 on measures to
increase credit and curb NPLs, every bank and financial institution is
now required to develop a NPLs strategy aimed at reducing non-performing
loans, establish permanent recovery function, and segregate the duties
of credit departments.
The measures
include establishing an external strategic option to reduce NPLs;
establish recovery targets - both short and long term - and establish
key performance indicators for the bank's recovery function.
Banks and financial
institutions in Tanzania are also required to re-assess their
operational capabilities in terms of credit processes, tools, data
quality, systems, staff and credit risk decision-making.
This will ensure
that lending and recovery activities are performed in a systematic
manner while using credit reference systems and improved credit
assessment.
The new measures
have led to the waiver of Regulation 7(5) of the 2014 'Banking and
Financial Institutions (Management of Risk Assets) Regulations from
restructuring non-performing credit accommodation up to four times from
four currently.
This will be a
relief for borrowers with a good repayment track record, but have
somehow failed to repay their loans, as well as borrowers whose
businesses have been adversely affected by changes in economic variables
or other business-related events.
No comments :
Post a Comment