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Tanzania: Promising Signals in Banking Sector
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The Citizen (Dar es Salaam)
EDITORIAL
27 March 2008
Posted to the web 27 March 2008
A new dawn is unfolding in the banking sector, following the central bank's decision to stop using government securities to mop up excess money from the economy, and to finance national budget deficits.
The emerging landscape of declining lending charges, surging deposit rates and geographical diversification of banking outlets is good news, indeed, for mostly ordinary wananchi, small and medium enterprises.
With limited Treasury bills (T-bills) to buy, commercial banks are being forced to explore new investment areas and to literally woo customers. This has led to borrowing becoming cheaper and depositors getting reasonable interest income.
For many years, lending rates have been inordinately high, while deposit rates have been abysmally low. This discouraged both saving and lending. However, this is now changing and more improvements are expected as the bank continues cutting yields to discourage investment in T-bills.
The falling T-bill rates have also helped to prevented foreigners from reaping in the money market. Their involvement was making borrowing from commercial banks dear and saving unattractive.
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At the inception of the T-bills market in August 1993, the securities' rates rose rapidly, reaching an average yield of 48 per cent during the first month. Although that had slipped to nearly 16 per cent, in March last year, the level was still high and reduced the financial sector motivation to lend.
In line with the decreasing rates on T-bills, the overall lending rate was cut from 15.94 per cent, last November to 15.24 per cent by end of January. Deposit rates have also improved but there is still more ground to cover.
All in all, the current level of lending charges is still high due to factors such as rising inflation and high lending risks. These should be promptly addressed with the target being single digit.
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