Empowerment attitudes abet faulty loan exposure

-unwittingly exposing the banks to excessive exposure to unpayable loans. The governor raised suspicions that bribes are at times involved in the issuing of unpayable loans, as they can be seen from the start that they aren’t likely to yield the results required, in which case the lending .entity willingly risks money for a project or borrowing need that is clearly unprofitable. It is possible that wrongdoing is also involved, but a glance at our financial sector history shows otherwise.

For once, the government can be said to have a properly designed bank for unpayable loans, categorized as an investment bank, and the terms for which a new agricultural development bank has been formed are quite similar to the mode of operation of the decades-long industrial investment bank. In most cases the loans involved related to state-linked entities that touch interests of  breadth of the population, thus the wish to believe that the borrowers will succeed and return the money was privileged, at the expense of fabled ‘due diligence.’ In that case state-linked entities have benefited most from this sort of exposure.

At the same time, willful derogation of lending criteria to suit this or that consideration usually at the sectoral level but in a politically tinged manner opens the ‘floodgates’ for applying the same flawed criteria or consideration for private sector borrowers. As in this case no such public sentiments are involved, the matter (for managements or board members) comes down to the level of faulty exposure increment, and chances are that it will scarcely come to ten percent of such faulty loans. It is the same scenario in the foreign debt, that anything up to 90 per cent is public sector debt, and  not quite profitable.

Without insisting on this hypothesis, it is altogether possible that the central bank notices that 11.5 per cent of faulty loans say in the Tanzania Investment Bank or in due course the Tanzania Agricultural Development Bank as private sector based, and acts. This could also apply to the more established state-linked commercial banks despite their positive balances, as they may also have ‘actable anomalies.’ Such a move would have credible foundations from a due diligence point of view but scarcely at the macro-economic level, acting on 11.5 per cent faulty loans and saying nothing on 88.5 per cent faulty loans. 

This kind of ethical campaign on private borrowers while state-based borrowers bask in the sun with faulty loans isn’t helpful in the project for enhancing operational equality of the private sector with the state-linked sector. Let us look at bad debts and solve them, without discrimination. It is likely to be the best option as campaigns against the private sector damage economic stability more than some experts or top level bureaucrats appear to realize.