Govt’s accounts closure may affect banks’ lending prower

Leading Mzumbe University economist, Professor Honest Ngowi, said the move which will involve over 1trn/- in cash will deplete the concerned commercial banks’ lending ability hence reduce loan disbursements.

“Commercial banks will lose the cash that will find its way to the BoT. There will therefore be reduced liquidity in the affected/involved banks. With less liquidity, these banks may reduce their lending. Lending is the main business of commercial banks,” Prof Ngowi warned.

He said because of reduced loan portfolio and withdrawal of huge deposits, the banks will experience reduced revenues and profits which will have a spill over effect on the entire economy.

“Whether it will lead to cash crunch or not depends on the volume/amount of the cash involved and the portion of it that was used in lending out. Let's wait and see,” the Mzumbe University senior lecturer noted.

According to the Bank of Tanzania (BoT), the banking sector has continued to grow in terms of deposits and assets, supported by favourable macroeconomic environment, and remained resilient to internal and external shocks.

BoT’s latest Financial Stability Report shows that the banking system’s total assets grew by 12.4 percent during the year to September 2015, while deposits grew by 6.7 percent. The sector was adequately capitalized, with ratio of core capital to total risk weighted assets of 16.7 percent well above the regulatory requirement of 12.5 percent.

The report has it that total assets grew by 12.4 per cent to 26.35trn/- as at end September 2015. The growth of assets was mainly attributable to increase in deposits, which increased by 6.7 percent to 19,08trn/- at the end of the third quarter.

“Deposits are the major source of funding in the banking sector, comprising 72.4 percent of total asset as at end September 2015. The growth in deposits mobilisation was driven by introduction of new financial products and leveraging of technological innovations,” the central bank notes in the report.

BoT said the credit portfolio was fairly diversified as measured by ratio of aggregate large exposures to core capital of 126.8 percent in September 2015 from 13 7 percent recorded in March 2015. The levels were within the regulatory limit of 800 percent.

The banking sector asset quality remained broadly unchanged during the six months to September 2015. Asset quality slightly deteriorated as reflected by the ratio of Gross Nonperforming Loans (NPLs) to Gross Loans recorded a slight increase to 6.8 per cent at end September 2015 from 6.5 per cent recorded in March 2015.

“Trade, personal and agriculture were the main sectors which contributed to the banking sector NPLs at end September 2015,” BoT said.

Prof Ngowi advised that it will be worth conducting an evaluation of the situation after sometime so that stakeholders may establish scientifically with data if the government’s decision has been bad economics to commercial banks.

According to him, the only good which such a decision will likely bring is to enable the central bank to control inflation.

According to President John Pombe Magufuli, commercial banks are holding over 1trn/- of government money some of which does not even earn interest rates.

Commenting on the issue, the president of ACI-Financial Market Association, Ivan Tarimo, said fragmented bank accounts being held by public institutions especially those of regulatory bodies made it difficult to manage, which also impacted on planning and budgeting.

Tarimo expressed optimism that the move would yield positive results in the long run.

“It is time for Tanzanians to support key government policies aimed at improving the economy. There is no doubt that the TSA would have an immediate impact on banks but the long-term effect will be beneficial,” he said.

Ecobank Tanzania Limited Managing Director, Enoch Osei-Safo told The Banker that the central bank should hold the TSA for the government pointing out that BoT plays a major role in monitoring such scattered accounts at commercial banks.

“The government deposits in private banks should be in a suitable environment because these are public funds which must be protected,” said Osei-Safo.

Alex Ng’winamila, Director of Financial Markets at BoT, said the government deposits at commercial banks were important as they activated the market by providing liquidity needed to disburse loans.

He said the decision is necessary as explained by authorities but noted that it will likely hurt banks which need enough liquidity. Bankers, who have not been enjoying the privilege, said the deposits were giving some banks an upper hand in the industry and hugely distorted the business competition terrain.

CRDB Bank Plc. Managing Director Dr Charles Kimei said although the withdrawal will cause hiccups briefly in the banking industry, it was important to the government.

“There is no reason to panic, it’s a normal thing for governments to do; it’s a good thing. In Uganda and Rwanda they did it long ago,” Dr Kimei told a news conference recently while pointing out that after all, its only revenue accounts of public institutions which collect money on behalf of the government.

Dr Kimei said some people are spreading fears through the mainstream media and social networks warning that commercial banks could face serious liquidity crisis.

“Indeed there will be some interruption briefly and then everything will pick up because banks will readjust,” Dr Kimei who doubles as Tanzania Bankers Association Chairman said.