THE banking sector has remained sound and stable, with levels of capital and liquidity above
regulatory requirements.
According to the
Bank of Tanzania (BoT) Monetary Policy Statement for June, banks
maintained adequate capital buffer to withstand shocks, as the ratio of
core capital to total risk weighted assets and off-balance sheet
exposure was 17.4 per cent in April this year, well above the minimum
regulatory benchmark of 10.0 per cent.
The report said
banks have remained liquid, evidenced by the ratio of liquid assets to
demand liabilities of around 32.7 per cent against the minimum
regulatory requirement of 20.0 per cent.
The quality of
assets of banks deteriorated as reflected by the ratio of nonperforming
loans to gross loans that rose to 11.0 per cent in April this year, from
10.7 per cent in June 2019.
The monetary and
fiscal policy measures implemented to cushion the economy from the
impact of coronavirus are expected to significantly reduce the risk of
further deterioration of quality of loan portfolios of banks due to slow
down of some businesses such as tourism.
The measures include flexibility on regulatory requirement for loan restructuring in various forms.
This was manifested
in a number of measures, including reduction of the statutory minimum
reserves (SMR) requirement ratio in two stages from 8.0 per cent to 7.0
per cent, and further down to 6.0 per cent, downward revision of
discount rate from 7.0 per cent to 5.0 per cent.
The haircuts on
government securities pledged for central bank borrowing windows for
banks were reduced, from 10.0 per cent to 5.0 per cent for securities
maturing within one year, and from 40.0 per cent to 20.0 per cent for
securities with remaining maturities exceeding one year.
Furthermore, the
BoT intensified deployment of instruments for injection of liquidity,
including reverse repo transactions and standing credit facilities.
The measures significantly improved liquidity in the banking sector and ultimately lowering interbank interest rates.
Specifically,
overnight interbank cash market interest rate averaged at 4.83 per cent
in April 2020, from 5.47 per cent in June 2019 and 5.20 per cent in
April 2019.
Likewise, overall
weighted average yields of Treasury bills decreased to an average rate
of 4.88 per cent in April 2020, compared with 8.69 per cent and 8.20 per
cent in June 2019 and April 2019, respectively.
The overall
interest rates charged by banks on loans also declined, albeit
moderately, to an average of 16.85 per cent during the period July 2019
to April 2020, from an average of 17.16 per cent in the corresponding
period of 2018/19.
Besides the
liquidity enhancing measures which aimed at strengthening balance sheets
of banks and increasing lending at low cost, banks were granted
regulatory flexibility for loan restructuring.
Also, banks and mobile money operators were encouraged to increase initiatives of leveraging digital payment platforms.
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