Borrowers get relief as lending rate decline further

Data from commercial banks and Bank of Tanzania (BoT) computations show overall lending rate reached 15.34 percent during the end of last year, from 16.06 percent recorded at the end of 2022.

Five years ago, the central banks report shows overall lending rate was more than 17 percent, while the short term lending rate was nearly 18 percent.

However, lending rates have remained ‘high’ in accordance with the borrowers ‘wishes’, as many would hope them to go down to a single digit, although analysts believe further decline due to improvement of bank’s asset quality.

Only agriculture sector, which accounts for 10 percent of total banking lending enjoy the single digit interest rate of at least nine percent, partly associated with ongoing government policies and measures to improve the sector’s productivity.

Banking industry depends mainly on customer deposits as the main source of funds for financing various economic activities.

The BoT’s monthly economic review for January shows the short-term lending rate (up to one year) also experienced the downward trend, after closing last year at 15.91 percent, compared to 17.27 percent recorded in December 2022.

However, the lowest short term lending rate was also recorded between 2019 and 2020, as it was ranging below 16 percent.

The overall negotiated lending rate remained unchanged at 13 percent during the period of 12 months ending December, 2023, while for prime customers; the rate eased to 13.30 percent from 14 percent, according to BoT.

To work on this trend, the central bank has noted that the government is implementing reforms to reduce impediments to the stickiness of lending rates, include reforms to increase financial inclusion and improve business environment.

This testifies that this trends; coupled with the decline of bad loans, have improved the banking appetite to continue lending to various sectors of the economy, in a time when the government continues to improve business environment.

According to BoT reports, the rate of Non-Performing Loans (NPLs) has declined to 4.3 percent in December 2023, below the regulatory benchmark five percent.

However, banking sector has aggressively continuing to implement various measures on assets recovery as well as improving credit issuance procedures.

“The level of NPLs is expected to continue declining as banks continue implementing measures to improve the quality of assets. Furthermore, the stress testing indicated the banking sector to be resilient to baseline, adverse and severe shocks across all major risk factors,” the central bank report notes.

With the central bank currently implementing the interest rate based (price) policy, which was adopted since the start of this year, the costs of credits are still determined by market forces, depending on terms and conditions agreed between a borrower and a lender.

According to the BoT report, private sector credit growth remained strong, albeit declined reaching 17.1 percent in December 2023, compared with 18.3 percent registered in the preceding month and 22.5 percent in the corresponding period in 2022.

However, the growth was above the projected target of 16.4 percent by the end of December 2023. This performance reflects continued high demand for new loans consistent with the increase in economic activities, backed by improving business environment.

Credit extended to agriculture maintained the highest growth at 43.5 percent, followed by mining and quarrying, at 36.4 percent.

Personal loans continued to account for the largest share of outstanding credit at 37.2 percent, followed by trade, at 13.6 percent and agriculture.

“The ongoing implementation of measures to strengthen the resilience and stability of the banking sector is expected to improve further and facilitate intermediation activities,” BoT’s monetary policy statement, mid-year review for February 2023 says.

The measures include amendment of the Banking and Financial Institutions Act to allow compliance with the requirements of capital adequacy as a step towards the migration to Basel II/III risk-based supervision standards and issuance of new Capital Adequacy, Liquidity Management, and Prompt Corrective Action Regulations in line with Basel II/III standards.

Other measures include implementation of the Real-Time Supervisory Information System to ensure real-time availability of supervisory information to facilitate timely and proactive policy and regulatory actions, and implementation of the National Financial Inclusion Framework 2023- 2028, which aims at improving access and usage of financial products and services.