Banks, financial institutions cautioned over discount rate
The Bank of Tanzania (BoT) Governor, Prof Benno Ndulu, has urged banks and financial institutions to take note of the downward review of the discount rate from 16 per cent to 12 per cent in their operations.
“BoT’s expectations are that the move will enhance credit growth and reduction in lending rates, he said. Prof Ndulu made the call during a meeting with chief executive officers (CEOs) of banks and financial institutions at the BoT headquarters in Dar es Salaam.
However, he cautioned them that when disbursing loans, they should ensure that only customers with good track record are being considered. This is due to the recent increase in non-performing loans (NPLs) among many banks.
The BoT reviewed the discount rate from 16 to 12 per cent effective from March 6, 2017. In its letter to banks, the it said the revised discount rate took into account the prevailing 91 and 182-day weighted average yields and the monetary policy stance geared towards sustaining price stability.
It will also be used to discount treasury securities. On their part, CEOs of banks and financial institutions sought assurance from BoT as to the duration of being in force of the newly announced discount rate, lest they adjust their loan policies only for the discount rate to move upward without a warning.
The governor assured them that the rate can hold for a while and that any adjustments would depend on prevailing economic conditions, but assured them that such changes will not be drastic. Earlier, the banks and financial institutions CEOs were briefed about the economic trends nationally, regionally and globally.
Nationally, Tanzania attained a 7 per cent GDP growth during 2016, which is a good record in the region, the leading sector being mining and quarrying followed by transportation and storage, power generation and manufacturing.
Headline inflation increased to 5.5 per cent in February 2017 from 5.2 per cent the previous month. He attributed the increase to hike in food prices. He said the risk of upward inflationary pressures may persist in the coming few months due to rising food prices.
The governor said BoT will continue to be cautious of the risk of inflationary pressures coming from the food supply outlook in the East African Community (EAC) and Southern African Development Community (SADC) and will be ready to take appropriate measures Monetary aggregates sustained slow growth of 2.9 per cent in the year ending December 2016 as against 18.8 per cent growth recorded in the corresponding period in 2015.
The slow growth is attributed to decline in net foreign assets of the banking system and net credit to the government. Also credit to the private sector grew by only 7.2 per cent in the year ending December 2016, compared to 24.8 per cent in the year ending December 2015.
This was associated with banks’ elevated cautiousness in lending in the face of increase in non-performing loans (NPLs) and low foreign budgetary inflows The report said however, that the shortfall was partially compensated by increase in transaction velocity.
During the period under review, current account deficit narrowed by 47 per cent, driven largely by increase in receipts from tourism, gold and traditional exports, decrease in import bill, mainly of oil, consumer goods, building and construction, machinery and transport equipment.
The government’s official reserve amounted to US $4,331.7.6m/- at the end of January 2017, which is about 4.2 months of projected imports. Exports in 2016 grew by 4.1 per cent to US $9,285.6m/-, mainly driven by gold due to recovery of world market price and increase in export volume, travel receipts on account of increase in number of tourist arrivals and traditional goods consistent with increase in prices of some commodities in the world market.
The value of imports in 2016 was $10,774.5m/-, which is 13.9 per cent lower than the value for 2015. Imports were largely for machinery, transport equipment, building and construc-tion materials and consumer goods. Value of oil imports declined by 4.9 per cent due to fall in the world market prices.
Zanzibar recorded GDP growth of 4.4 per cent during the first three quarters of 2016 compared to 8.0 per cent in similar period of 2015. The decline in growth was attributed to decline in the slower growth in construction, information and communication activities.
Major contributors to growth were, arts and entertainments, finance and insurance, mining and quarrying and administrative and support services.
The CEOs of banks were told that global and domestic conditions remain favourable for continued price stability and that the Bank of Tanzania will continue to manage short-term liquidity fluctuations with using various monetary instruments, with the reduction of discount rate also contributing to ease liquidity conditions among banks.
The governor meets CEOs of commercial banks every two months to discuss economic trends and get feedbacks from them.