Tanzania: BOT's New Measures to Boost Lending

Feb 26, 2018 | The Citizen - All Africa

The Bank of Tanzania (BoT) has published new measures intended to improve access to credit.

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. Source:
All Africa