LAST week, I had an opportunity to share my views on what could be the effect of the new guidelines/rules on development financial institutions and their management as the government maintained strategic banks, guidelines that would ensure these banks are well capitalised to be able to finance large projects that would stimulate overall economic growth.
In line with the comments made, remarks on the consequences and purpose to take serious measures against those who may be suspected to have caused the existence of bad loans intending to find the perpetrators so that appropriate action can be taken. Was it necessary for BOT to put such notice to the public? Was it appropriate? What is BOT is trying to accomplish?
All these issues, when one critically reasons on powers conferred to the regulator, provoke more questions than answers.
It is no longer a secret, legislators are more and more getting nervous due to the continuous increases in non-performing loans, and the situation without the right strategy could worsen in this era of COVID-19 pandemic as the world prepares for could be 4th wave. In the banking sector, it is well known that NPL is one of the key signs of the success and stability of the banking sector.
The upsurge in loan defaults, through an orchestrated increase in NPLs, worsen the asset quality of banks, and in due course, doesn’t only lead to financially weakening the banking system, but to reduce economic proficiency, damage social well-being, and corrosion of economic bustle.
Regulators move as of now alleged to be informed by their review to establish the main reasons behind high NPLs in the banking sector and their conclusion suggesting that, to a great extent employees of some banks and financial institutions are directly responsible for NPLs existence through issuing loans without adhering to procedure, involved in fraud and corruption and lack of integrity is nothing else but exposing own failure (details see BOT’s notice to the public) While it doesn’t get into one’s mind what is the rationale for the public notice and its timing release a meaningful conclusion is simple, the persistent increase in NPLs as per the assessment of audited and published banks accounts raises a huge number of questions on banking supervision supposedly manned by BOT.
The fact BOT brought this to public attention by shifting goal post and asserts blames those working in the sector, who were vetted by the same regulator tells a lot. I think the increased problem is partly attributed to poor monitoring.
All the commercial banks and other financial institutions are regulated by BOT and importantly are manned by managing directors/ chief operating officers in addition to the board of directors in the process of their appointment approved by BOT’s machinery.
That being the case, is the regulator trying to tell the public that it has sanctioned individuals who have been not honesty to save the sector who have been suspects of not abiding by proper rules and regulations for the sector.
The continuous increase in NPLs in my view is more than blaming the bank’s officers. Accusing the default loans and linking their existence as per BOT’s public notice is unfair.
BOT appraises and authenticates the names of the heads of these institutions. BOT validates the board of directors of these institutions.
In short, BOT passes out the scrutiny process. Now going to the notice to the public on measures to address non-performing loans in the banking sector and looking at its timing, objective and purpose raises a lot of questions for a well-balanced to those who understand what a regulator’s job is all about in the critical sector such as banks.
My point of view remains crystal clear that the public communique by the regulator was uncalled for as it doesn’t help much in building public trust and confidence in our rather juvenile and still emerging Banking sector.
In its place, more should be done in building trust and confidence, stability, promoting access to financial services, enabling and, the regulator can achieve these by regulating banks more efficiently through ways such as regular supervision reviews and stern vetting of the board of directors and senior officers in enhancing governance and efficiently fetching with the public as they are currently doing but in a smarter manner.
It must be remembered banks’ products are specialised products that need certain skills and banking knowledge.
Of course, banks that do not adhere to guidelines must face constructive directives, punishments and where remedies do not work the worst case is closure while protecting users’ money and deposits.
Internal shortfalls such as bad credit appraisal and loan fraudsters are inherent risks in any banking sector globally and banks always continually strive to enhance their controls.
To the best of my knowledge, no credible published research indicated that these cause a systemic issue with the economy’s lending interest rate practice. On the contrary wide body of research shows that higher lending interest rates in emerging nations are largely a structural and monetary policy issue.
Given the sensitivity of the banking sector to the economy, internal shortfalls identified by regulators during regular supervision visits are normally discussed internally with respective banks and authoritative remedial directives issued.
There are additionally punitive sanctions for not observing such directives both financial and personal.
These matters or dirty linens are internal between the regulator and the respective banks and believe are of not only interest but no value to the public unless one intends to name and shame and consequently impair public confidence in the banking sector.
Isn’t my intention to instruct my fellow employees at BOT specifically those accountable for banking supervision but enough to say the non-performing loan has an inverse relation with gross domestic products analysis using panel data drawn from published and audited accounts of banks signals that smaller NPLs are caused due to an advancement in the real economy and levels of non-performing loans tend to become higher when banks follow an agammaessive lending strategy that may lead to charging more interest rate than normal.
Even though the issue of the non-performing loan and its contributing factor are well discussed in conventional banking literature, it is still in my view unmapped in the context of Tanzania especially to find out persuasively what is behind NPLs outside claims raised by BOT’s notice.
More significantly, it is worth researching if policy directions and approaches before 2015 and after 2015 to date may have played a role in the level of NPLs being experienced in our banks.
Research finding for such a study could I believe shed light on how did it get to this seemingly alarming state such that the public has to be alerted?
Where was the regulator who by the way sanctions and even vetting directors and senior managers of all banks before their employment and regularly afterwards?
Or is it the effect of covid- 19 or an involuntary admission of one’s failure? And who should be answerable in the first place?