Bank of Tanzania. PLC. PHOTO FILE | NMG
Dar
es Salaam — The share of personal loans to commercial banks' total
credit to various economic activities is on the rise as lenders shift to
salaried workers to increase their profits amid declining yields on
government securities.
The Bank of
Tanzania (BoT) said in its April 2018 Monthly Economic Review that
personal loans accounted for 27.2 per cent of commercial banks' total
loans to various economic activities during the year ending March 2018,
far above any other activity.
During the year to
March 2017, the share of personal loans stood at 17.5 per cent, behind
trade activities which accounted for 20.2 per cent. At a time when the
BoT was lowering yields on government securities, commercial banks are
left with no option but to start lending, analysts say.
With high levels of
Non Performing Loans (NPLs) in the market - currently averaging 12 per
cent of total gross loans - lenders are forced to become more and more
innovative in their lending decisions and salaried employees are viewed
as the best option.
Yields on Treasury Bills have fallen from 10.32 per cent in May 2017 to a measly 4.64 per cent in May 2018.
Similarly, in March
2017, the BoT cut its discount rate to 12 per cent from 16 per cent to
help spur lending and boost economic growth. It was the first time since
2013 that the BoT was lowering its rate.
Again in August of the same year, the BoT lowered the discount rate to an all-time low of 9 per cent.
The discount rate
is applicable to banks borrowing from the central bank as a lender of
last resort and in the Treasury securities (government papers).
Such decisions have
created room for commercial banks to aggressively 'fight' for an
increased pie of the business that comes with personal loans issuance,
forcing them to roll out loan packages with lower interest rates and
more lenient pay back requirements.
Some of the
commercial banks, which have announced reductions in loan interest rates
in recent months, include: BancABC, Ecobank, PBZ and NBC.
While some lenders
decided to keep their interest rates to themselves for reasons only
known to them and their clients, CRDB Bank Plc came out openly on May
11, 2018, announcing that it was cutting its rates down from 22 to 17
per cent That was followed with a similar announcement from NMB Bank Plc
which reduced its loan interest rates from 19 per cent to 17 per cent
for salaried workers.
"For a long time,
customers have been asking for the reduction of interest rates, we have
now approved a huge reduction of interest rates that comes with best
offers including a free processing fee for 6 weeks from today" the NMB
Bank Plc chief executive officer, Ms Ineke Bussemaker said last week.
But CRDB Bank Plc
'hit back' announcing yesterday that it was further cutting its interest
rates on personal loans to 16 per cent
Under the new
arrangement, announced by the CRDB managing director, Dr Charles Kimei
in Dar es Salaam yesterday, one can borrow up to Sh100 million, up from
Sh50 million.
The loan, according to Dr Kimei, will be obtained within one day through the bank's branches.
"We are also
introducing a loan buyout system. We will buy the loans that some
clients have with some lenders so that they can also get a chance to
borrow from CRDB," he said.
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