13 February 2013

Tanzania: Long Term Lending Rates Go Up

LENDING rates for the long term loans exceeding five years increased by 3.25 per cent to 14.24 per cent in the year ending December last year, the situation attributed deteriorating credit to the private sector.

Similarly, lending rates for long term loans of between three to five years increased to 16.73 per cent in the period under review compared to 14.33 per cent recorded in the year earlier. The overall lending rate eased to 15.53 per cent from 16.45 per cent in October last year.

This, according to the Bank of Tanzania (BoT) monthly economic review, represents a slowdown in the growth of private sector credit to 18.2 per cent from 27.2 per cent recorded in the year ending December 2011. "The deceleration in credit was recorded in all major economic activities, except for Transport and Communication," stated the report.

Agriculture and manufacturing saw a decline in the rate of growth to 10.8 per cent and 11.4 per cent respectively. The amount of credit extended to the private sector was 1.38tri/-, compared to 1.63tri/-recorded in the year ending December 2011.

In the meantime, expenditure during the period under review picked up with liquidity among banks increasing substantially, reflecting that the lending institutions hold excess reserves and movement in the Inter-bank cash market (IBCM) rate.

Excess reserves of banks reached a peak of 637.5bn/- as of November last year, while the IBCM rate decreased from 11.31 per cent recorded in July to 2.67 per cent in the third week of the period in question. However, the increased liquidity among banks is not proportional to the disbursement of loans to the private sector as lending is one of the core businesses that earn the financial facility premium profits.

Money Supply and Credit Developments Annual growth of extended broad money (M3) slowed down to 13.1 per cent in December last year, from 18.2 per cent recorded in the corresponding period in 2011, largely explained by the contraction in net foreign assets (NFA) of banks and slow down in the growth of private sector credit.

The NFA of banks contracted by 28.3 per cent in the period in question, compared to the annual growth of 6.4 per cent registered in the corresponding period in 2011. Deposits and lending rates by banks exhibited mixed developments in the year ending December 2012.

Overall time deposits rates increased to 8.45 per cent, from 8.10 per cent in November last year, and 7.12 per cent recorded in December 2011. The spread between 12-month deposit rate and one year lending rate narrowed to 4.06 percentage points in December last year, compared to 4.86 percentage points in November last year and 4.59 percentage points in December 2011.

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