DEPOSITORS have all reason to smile as they now envisage to earn more returns from the money banked in financial institutions, thanks to competition that has lifted up interest rates.
This means people who deposited their money in banks during the past 12 months reaped some better interest earnings than those they earned before. The trend follows high deposits demand to create disequilibrium which went against the law of demand and supply to favour saving and fixed account holders.
The demand was mainly attributed to scarce liquidity in the financial system, the entrance of new banks in the market 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 entrance 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 sequence, CRDB Bank 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 stayed 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 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 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 quoted 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.
BoT reported that last November the overall time deposit rate increased to 8.4 per cent from 8.29 per cent in October 2012 and 6.74 per cent registered in November 2011, partly reflecting deposits mobilization efforts and increased competition among commercial banks.
In comparison, the overall weighted average lending rate was 16.05 per cent in November 2012, compared to 16.44 per cent in October, 2012 and 14.13 per cent recorded in the corresponding period in 2011. "The spread between 12-month deposit rate and one year lending rate narrowed to 5.08 per cent in November, 2012 from 5.47 per cent recorded in November, 2011," BoT says in the December Monthly Economic Review.
"It is that competition that pushed up depositing interest rates though terms and conditions attached to these rates make them differ," says Ms Mwambapa.