Mtwara — Challenges which commercial banks in Tanzania had experienced in the last two years are finally over, according to the Bank of Tanzania (BoT).
During that period, banks traversed through a bumpy road that stemmed from squeezed liquidity as commercial banks grappled with illiquid clients. This resulted in reduced lending to the private sector.
With tight liquidity in the economy, borrowers failed to honor their obligations, resulting in an accumulation of high levels of nonperforming loans (NPLs).
Until the end of December 2016, the NPLs-to-total-gross loans ratio had reached an average of 9.5 per cent, having risen from an average of 6.4 per cent in 2015. This was against the generally accepted threshold of five per cent.
That notwithstanding, however, the banking sub-sector's stability - measured by all factors within the financial soundness indicators (FSIs) - were positive, Mr Eliamringi Mandari, a manager at the central bank's directorate of banking supervision, said in Mtwara on Wednesday.
"We measured the points through capital adequacy, asset quality, earnings, liquidity and sensitivity to market risk," he said.
BoT data shows that the capital adequacy ratio (CAR) had improved by 1.15 per cent last year - reaching 18.92 per cent at the end of 2017, having risen from 17.77 per cent in 2016.
Mr Mandari also said that the capital adequacy ratio last year was above the industry benchmark of ten per cent - plus 2.5 per cent of buffer ratio.
Banks' total capital stood at Sh4.73 trillion last year, up from Sh4.28 trillion in 2016.
Measured by liquidity ratio, the stability climbed to 40.13 per cent, compared with 35.8 per cent in 2016.
Regarding assets, their total value reached Sh29.97 trillion in 2017, rising from Sh27.92 trillion in 2016. Total deposits also increased, reaching Sh21.23 trillion in 2017, up from Sh20.15 trillion in 2016.
With the spectre of rising NPLs, however, returns on equity dropped to 6.88 per cent from the 8.88 per cent recorded in 2016.
Also, returns on assets dipped to 1.61 per cent last year, from 2.08 per cent in year-2016.
In another development, BoT said it was still verifying the records of depositors who held accounts with the five banks whose business licences were revoked recently after they failed to meet the required minimum capital threshold of Sh2.5 billion.
The director of the central bank's Deposit Insurance Board (DIB), Mr Emmanuel Boaz, said the exercise was not easy, noting that it was fraught with challenges in most of the banks' records.
Early in January, BoT revoked the operating licences of Covenant Bank for Women, Efatha Bank Limited, Njombe Community Bank Limited, Meru Community Bank Limited and Kagera Farmers Cooperative Bank Limited after they failed to meet the newly-set minimum capital threshold. Following the closure, DIB is currently processing payments to the five banks' bona fide depositors a sum of up to Sh1.5 million in accordance with the laid-down legal and regulatory frameworks.
"We have to ensure that the records are in order before we can start payment," Mr Boaz said.
Noting that the time frame for payment is not yet known for sure, he said the process might take two months or so.
In another development, the DIB director said the Board was mulling on whether or not to increase the payment of Sh1.5 million - hastily adding that this will all depend on the country's GDP and/or inflation rate, and other relevant factors.
However, he noted, any changes to the extant arrangements have to be scrutinised by DIB, whose proposals and recommendations must be approved and authorised by the Ministry of Finance and Planning.
Eleven banks have been shut down for various reasons since 1995.