Tanzania Daily News (Dar es Salaam)

Tanzania: Interest Rates On Deposit Go Up

BANKS are now offering attractive interest rates on deposits where in the last 12 months the market experienced sharp increase, thanks to disequilibrium between demand and supply.

The deposits demand was mainly attributed to scarce liquidity in the financial system, the entrant of new banks in the economy and widening venue for portfolio investments.

The scarcity was experienced following the tight monetary policy instituted by the Bank of Tanzania (BoT) to curb inflation and shilling's depreciation.

The entrant of new banks pushed for deposits demand in the economy, which was already gripped by liquidity scarceness thus pushing up interest rates.

CRDB Bank's Director of Marketing, Research and Customer Services, Ms Tully Esther Mwambapa said bankers were left with little choice than to increase interest rates while others came up with promotion drives to attract deposits.

"Competition for deposits pushed up interest rates in the market," Ms Mwambapa said. In that vein, CRDB which is the largest bank in terms of deposits and assets, started the year by offering competitive rates after increasing interest, in average, for more than three times -- depending with tenor and amount.

CRDB Bank offered deposits' interest rate of up to 6.5 per cent for less than 1.0bn/- that staying in the bank for three months upped from an average of 1.5 per cent of previous rate. For the six and nine months, the rates have also gone to up to 7.5 per cent and 7.75 per cent from an average of 2.5 per cent and 3.5 per cent respectively.

Whereas, for 12 and 24 months the rates has doubled to up to 8.5 per cent and 9.0 per cent respectively from an average of 3.5 per cent for a less than 1.0bn/- deposit. "Anything deposit above 1.0bn/- are subjected to rate to be offered by dealing room, which in most cases offered higher interest rates," Ms Mwambapa said.

She said deposit accounts are attractive places to park cash for investors who want a safe vehicle for maintaining their principal while earning a small amount of fixed interest.

The Tanzania Securities Chief Executive Officer, Mr Moremi Marwa, was recently quoted as saying that money investors have a wider option where to invest ranging from deposit that fetches yields of 8.0 per cent on average, T-bills between 15 and 18 per cent and equity yields are above 10 per cent.

"This is good for investors as banks and equities are competing for funds. "Those with huge funds are the ones who benefit most from the said banks' interest rates the like of pension funds and fund managers, some ending negotiating a better deal of up to 18 per cent," Mr Marwa said.

Last year, leading banks such as National Microfinance Bank (NMB), and National Bank of Commerce (NBC) ran promotional draws, awarding a number of prizes, in a bid to attract deposits.

While new entrant banks such as First National Bank of South Africa, came up with competitive deposit interest rates of up to 12 per cent, the increases in return reduced the spread between lending and deposit interest rates.

According to BoT, overall time deposit rate increased to 8.56 per cent in June 2012 from 6.06 per cent recorded in June 2011, while DSE lending rates for short-term loans of up to one year stands to an average rate of 13.92 per cent.

"As a result, the spread between 12-months deposit rate and one-year lending rate narrowed to 2.82 per cent from 6.82 per cent recorded in June 2011," the last July Monthly Economic Review report said. On other hand, World Bank report published in 2012 shows that the deposit interest rate in the country was last reported at 6.57 per cent in 2010.

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