TANZANIA's stimulus policies adopted in response to the pandemic continued to drive the rapid and broad-based expansion of private credit.
According to the World Bank report on Tanzania Economic Update launched in Dar es Salaam on Monday, the growth rate of credit to the private sector accelerated from 3.2 per cent in August 2021 to 20.7 per cent in August last year.
"Sectoral data for the first eight months of the year reveal robust private credit growth in all areas except tourism, hotels and restaurants, electricity, gas and other sectors, which experienced a contraction," WB said in the report.
Reflecting underlying patterns in consumer demand, personal loans which account for about 38 per cent of total credit grew by an average of 26 per cent during the first eight months of 2022.
Rising interest rates encouraged a 19.3 per cent increase in deposits during the period, which boosted credit growth.
Lending rates declined slightly but did not reach the level targeted by the central bank in July 2021, underscoring the need for further structural reforms.
As the banking sector maintained a conservative risk approach and amid rising inflation, overall lending rates (in Tsh) fell slightly from 16.8 per cent in August 2021 to 16.1 per cent in August last year remaining far out of reach for most Micro-, Small and Medium-sized Enterprises (MSMEs).
Savings and time deposit rates rose from 1.6 to 2.1 per cent and 6.6 to 7.5 per cent, respectively between July 2021 and July last year contributing to a 19 per cent increase in banks' domestic deposits.
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Financial stability indicators for the year ending July 2021 suggest that the banking sector is sound, adequately capitalised and profitable.
The increased loan write-offs and restructuring reduced the non-performing loans (NPLs) ratio.
The tight supervision of banks' risk management by the BoT, improved loan provisioning, stronger financial infrastructure, the development of digital financial services, improvements in the quality of credit data for individuals and businesses, enhanced bank-resolution and dispute settlement mechanisms and stable macroeconomic policies will be necessary to lower lending rates.
Deepening the financial sector by developing the capital market and diversifying the range of available financial products could improve intermediation and further reduce lower lending rates.
