TADB managing director, Mr Frank Nyabundege. PHOTO | FILE
Dar es Salaam. The Bank of Tanzania (BoT) has issued new regulations in an effort to ensure that development finance institutions (DFIs) in the country are able to finance large-scale development projects.
In its Banking and Financial Institutions (Development Finance) Regulations, 2021, the BoT is raising DFI’s minimum core capital to Sh200 billion.
Hitherto, the minimum core capital requirements for development finance institutions was Sh50 billion as per the Banking and Financial Institutions (Capital Adequacy) Regulations, 2014.
The BoT has instructed the development institutions which have not met the prescribed minimum capital do so within the next five years.
In Tanzania, there are two development finance institutions. These are the Tanzania Agriculture Development Bank (TADB) and the TIB Development Bank. Both are government-owned.
Development lenders say the decision was good - and, that, it will have a big impact on the financial muscle and ability of DFIs to finance large-scale development projects in the country.
“…DFIs will have more funding, and the minimum single obligor limits will also go up from the current Sh12.5 billion to Sh50 billion per customer. This means that DFIs like TADB can do more to support strategic agriculture projects - and, hence, meet its developmental mandate of transforming agriculture from subsistence levels to a commercial scale,” the TADB managing director, Mr Frank Nyabundege, told The Citizen.
He said the five-year grace period given to DFIs so that they can comply with the new core capital threshold provides ample time for them to raise the requisite funds.
Mr Nyabundege exudes confidence that the BoT has given DFIs more favourable conditions to allow loans classifications to be upgraded according to their repayment profiles.
This is contrary to the past rule of four consecutive quarters.
“This is highly needed in the agriculture sector where loans repayments are structured in line with the cyclical nature of the value-chain being financed,” he said.
The regulations will also improve credit quality reporting - and also to more accurately reflect the risk profile of DFI loans.
Analysts say this is a good step - and that it would also be a deliberate move by the banking sub-sector’s regulator to attract big investors in the sub-sector, and improve liquidity.
“It might be targeted to have big development institutions that would be capable of funding major development projects which the country is implementing,” a seasoned banker and financial analyst, Mr Lawrence Mafuru, told The Citizen.
Mr Mafuru said that, currently, Tanzania has been seeking funds from foreign institutions - which is more costly, while the level of risk management is also high. Thus, having capable local institutions is a good step in addressing the issues.
“People have been complaining about challenges in accessing financing: that we don’t have many institutions to fund big projects. That, I think, is what BoT wants to address,” said Mafuru.
TADB has extended a total of Sh127.5 billion as loans, advances and overdrafts. With non-performing loans to the tune of 5.15 percent of total gross loans, TADB is almost within the regulator’s requirements.
TADB is a profitable outfit, having registered a cumulative net profit of Sh7.77 billion during the first nine months of the current calendar year: up from the cumulative net profit of Sh7.13 billion recorded in a similar period last year.
On the other hand, TIB Development Bank reported losses of Sh6.28 billion while its non-performing loans were reported at 54 percent.
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