THE banking sector has remained sound and stable, with levels of capital and liquidity above regulatory requirements.
According to the Bank of Tanzania (BoT) Monetary Policy Statement for June, banks maintained adequate capital buffer to withstand shocks, as the ratio of core capital to total risk weighted assets and off-balance sheet exposure was 17.4 per cent in April this year, well above the minimum regulatory benchmark of 10.0 per cent.
The report said banks have remained liquid, evidenced by the ratio of liquid assets to demand liabilities of around 32.7 per cent against the minimum regulatory requirement of 20.0 per cent.
The quality of assets of banks deteriorated as reflected by the ratio of nonperforming loans to gross loans that rose to 11.0 per cent in April this year, from 10.7 per cent in June 2019.
The monetary and fiscal policy measures implemented to cushion the economy from the impact of coronavirus are expected to significantly reduce the risk of further deterioration of quality of loan portfolios of banks due to slow down of some businesses such as tourism.
The measures include flexibility on regulatory requirement for loan restructuring in various forms.
This was manifested in a number of measures, including reduction of the statutory minimum reserves (SMR) requirement ratio in two stages from 8.0 per cent to 7.0 per cent, and further down to 6.0 per cent, downward revision of discount rate from 7.0 per cent to 5.0 per cent.
The haircuts on government securities pledged for central bank borrowing windows for banks were reduced, from 10.0 per cent to 5.0 per cent for securities maturing within one year, and from 40.0 per cent to 20.0 per cent for securities with remaining maturities exceeding one year.
Furthermore, the BoT intensified deployment of instruments for injection of liquidity, including reverse repo transactions and standing credit facilities.
The measures significantly improved liquidity in the banking sector and ultimately lowering interbank interest rates.
Specifically, overnight interbank cash market interest rate averaged at 4.83 per cent in April 2020, from 5.47 per cent in June 2019 and 5.20 per cent in April 2019.
Likewise, overall weighted average yields of Treasury bills decreased to an average rate of 4.88 per cent in April 2020, compared with 8.69 per cent and 8.20 per cent in June 2019 and April 2019, respectively.
The overall interest rates charged by banks on loans also declined, albeit moderately, to an average of 16.85 per cent during the period July 2019 to April 2020, from an average of 17.16 per cent in the corresponding period of 2018/19.
Besides the liquidity enhancing measures which aimed at strengthening balance sheets of banks and increasing lending at low cost, banks were granted regulatory flexibility for loan restructuring.
Also, banks and mobile money operators were encouraged to increase initiatives of leveraging digital payment platforms.