DESPITE being sound and profitable, non-performing loans (NPL) in the banking sector surged to 7.5 per cent March this year from 6.7 recorded in December 2011.
According to the International Monetary Fund (IMF) Fourth Review under the Policy Support Instrument (PSI) report, the banking sector is well capitalised at 18.5 per cent at end of March 2012 with ample liquidity apart from the bad loans. "The incidence of loans defaulting has increased slightly by 0.8 per cent after recording decline trend in recent years," showed the IMF report.
Commenting on the rise of bad loans, the Tanzania Postal Bank (TPB) Managing Director Mr Sabasaba Moshingi said lack of Credit Reference Bureau (CRB) is one of the major obstacles that fuel up the rate of defaulting. The Bank of Tanzania (BoT) said early this year it plans to launch the country's first credit reference databank in September, in a move aimed at tackling high lending rates and defaulting.
The hope is with the facility that the pooling of credit information will reduce the risks of lending and bring down loan rates and increase the supply of credit to businesses to fuel growth. The BoT will administer the databank, while it would issue licences to private credit reference agencies.
Last year, the Bank invited companies last year to apply for licences to set up credit reference bureaus. According to TPB boss, borrowers may use their positive credit history as collateral to access loans at better rates and seek more competitive terms from different lending institutions.
Mr Moshingi said also that dealing with defaulters using judicial instruments was costly in terms of money and time, putting the lending institutions at great risk of incurring much loss. He further mentioned high inflation as a major obstacle to both lenders and borrowers to meet their commitments. "For example, lenders are sometimes forced to hike interest rates to compensate the rising inflation while high cost of doing business bite borrowers who in turn fail to honour their commitments," he added.
In the meantime, the IMF report showed that steps were being taken to ensure that BoT oversight keeps pace with the rapid growth of mobile phone-based financial services. To further strengthen supervision, the BoT has been receiving technical assistance from the IMF on conducting stress testing and putting in place a crisis resolution framework. The efforts were being synchronized with other East African Community countries as part of a goal to harmonize supervision frameworks.