Tanzania: Why Lending Rates Remain High

BANKS' lending interest rates are descending slowly due to high money price amid poor saving culture.

The financial institutions are accessing deposits in short term while lending tenures are long thus failing to lower borrowing rates.

Tanzania Bankers' Association (TBA) Chairperson Abdulmajid Nsekela said overall borrowing rates were gradually coming down but blocked by some challenges including accessing long term deposits.

"Most depositors don't keep their money long in accounts creating a challenge of mobilizing funds for loans," Mr Nsekela said last week when briefing reporters on the performance of CRDB Bank in quarter three.

Mr Nsekela, who is also the managing director of CRDB, the largest bank, said a lending- term is between five to ten years but deposits are hardly one-year.

"This liquidity mismatch spreads borrowing and depositing interest rate... "Since, banks have to look for alternative way of accessing funds which is costly," Mr Nsekela said.

NMB Bank, for instance, recently raised money for loan through a three year retail bond at 10 per cent interest.

To lend customers, the second largest bank, will have to add other factors on top of 10 per cent elevating further cost of borrowing.

But there are hopes in the horizons because bank agents 'wakala' are taking their roots in the economy thus bringing close banking services to 'wananchi'.

"Most agents are in a walkway distance this minimises lump sum drawing to enable depositors to keep longer their money on accounts... this is healthy for businesses," he said... Read more on All Africa 

Source: All Africa