Relocation of public funds collection no cause for alarm

Standard Chartered Bank’s new Chief Executive Officer, Sanjay Rughani, said the move is in fact good for development of the country although banks will experience brief liquidity pressure as the adjustment will suck over 1trn/- in cash. “I think the government’s move is good in terms of how best the money can be used for the implementation of the country’s development projects, while maintaining the overall integrity of the financial system,” Rughani, who visited The Guardian Limited on Tuesday, said. He pointed out that commercial banks need to cooperate and work with Treasury in implementing the directive because public money should be deposited at the central bank to help with development planning. Responding to a question if depositing public money in commercial banks was right, the Standard Chartered CEO pointed out that there is absolutely nothing wrong for revenue collecting public institutions to keep money in commercial banks. “As it has been explained by experts, this is a normal practice by many agencies as well as corporations owned by government,” he noted, saying that public money assists banks in lending as it boosts their liquidity. Rughani further said the government’s latest fiscal discipline move, which aims at improving accountability and transparency in the handling of public finances, will also have some impact in the banking industry. He warned that shortage of liquidity to loan the private sector may lead to hiked interest rates as demand for such money will be high in the short term. “Our interest rates are already very high at between 18 and 19.5 per cent and they may increase a bit in the short term,” he warned. Rughani’s sentiments are shared by his CRDB Bank Plc. counterpart, Dr Charles Kimei, who also said the government’s move will have a brief impact on the country’s banking industry as a significant part of liquidity will be relocated. “But there is no need to panic because banks will adjust after a short period,” Dr Kimei told a news conference last week when news of the Treasury order first came out. Dr Kimei, who is also Chairman of Tanzania Bankers Association, pointed out that the move will affect a few banks and the amount to be involved is not so big to paralyse the industry.