20 February 2018

Tanzania: Bank Loans Expected to Be Cheap

The Interbank rate was maintained at an average below two per cent throughout last week, signalling possible cheaper loans in the near future.

A Bank of Tanzania (BoT) report shows that overnight rates fell to weighted average rate of 1.95 per cent on Friday last week, lower than 1.97 per cent during the end of the previous week.

The interbank rate is the rate of interest charged on short-term loans between banks.

Banks borrow and lend money in the interbank lending market to manage liquidity and satisfy regulations such as reserve requirements.

Banks borrow and lend money in the interbank lending market in order to manage liquidity and satisfy regulations such as reserve requirements. The report shows that Sh106 billion was traded overnight during last week, higher than Sh77 billion the previous week, indicating increased cash demand. That happened while commercial banks and financial institutions were continuing to be cautious when lending to the private sector as levels of non-performing loans (NPLs) escalated.

The quality of assets as measured by the ratio of NPLs to gross loans deteriorated to 11.7 per cent in December 2017 from 10.6 per cent in June 2017, according to the central bank.

The BoT economic review for January showed that overall lending rates were still high -- at an average of 18.42 per cent in December 2017 -- compared with 15.66 per cent in the corresponding month in 2016, respectively.

The one-year lending rate eased to 18.24 per cent from 17.99 per cent in the preceding month and 12.87 per cent in December 2016.

The BoT monetary policy statement for February has however maintained that the interest rates will continue to be market determined.

"The bank will continue to promote development of a more efficient interbank cash market in order to improve price discovery and reduce interest rate volatility, while promoting transmission mechanism of the monetary policy signals," read the statement.


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