Lack of proper due diligence blamed for soaring NPLs

By DAILY NEWS Reporter

COMMERCIAL banks should conduct proper due diligence of their customers before lending to avoid falling into the burden of high non-performing loans (NPLs) that contribute to high lending rates.

The renowned economist Prof Samwel Wangwe told the ‘Daily News' in an interview that NPLs level had

soared due to lack of proper due diligence by some banks to ascertaining financial viability of businesses they were financing.

“Most commercial banks did not do proper risk analysis on the businesses to be lent and the ability to pay back the loan... some banks lent to businesses that were financially not feasible," he said.

An increase in NPLs has been taking tolls and eating banks’ profits with some financial institutions posting flat or lower profits. Credit risk is the single largest factor affecting the soundness of banks and the financial system as a whole.

Last week, the NMB Bank’s Managing Director, Ms Ineke Bussemaker said that high NPLs in the market averaging at 12 per cent above 5 per cent, the industry benchmark is affecting lending institutions’ decision to lower further interest rates to reach the single digit.

According to Prof Wangwe, even with the changing business and political environment few years ago, commercial banks remained in their traditional ways of doing their core business lending.

He said most of the businesses that faced closure or failed to service their bank loans have problems with the tax authority in paying required taxes.

Similarly, Prof Wangwe called on the need for commercial banks to work with customers as partners and provide financial literacy instead of harassing and intimidating to confiscate their assets.

Zan Securities Limited Chief Executive Officer, Mr Raphael Masumbuko said high NPLs in the market are shortlived as the situation will improve and banks restore the lost confidence.

“Banks should lend to people and businesses in order to grow the economy,” he said while urging for measures to ensure NPLs are lowered to the industry benchmark.

On his part, an economist with the University of Dar es Salaam (UDSM), Prof Humphrey Moshi said banks should be keen in assessing worthiness of their customers before lending.

“Knowing better the customer and doing risk analysis should be given priority to avoid falling into huge NPLs that damage banks performance and ability to contribute to economic growth,” he said.