BANKS are set to lower lending rates in the market in the near future after a thorough loan simulation, a move which will stimulate economic growth.
The aim of making loan simulation (helps to calculate loan payments and choose a loan repayment option) is to reduce the cost of money for lending to the private sector at affordable rates, which is the engine of economic growth.
The currently average lending rates of around 16 and 18 per cent makes it harder for businesses to make profit resulting into high non-performing loans (NPLs) level in the economy.
The move, announced yesterday by Tanzania Bankers Association (TBA) at a two-day 20th Conference of Financial Institutions (COFI) in Dodoma City, pleased President Samia Suluhu Hassan.
The president challenged banks in June this year when opening a Bank of Tanzania (BoT) branch in Mwanza to lower lending rates, since they are choking the private sector growth.
President Samia said data show that loans to private sector is still on the lower side due to various reasons, but mainly high interest rate, making the country fail to realise the required growth rate.
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"The private sector is not loaned enough as loan interest rates are high...
"But, I am pleased to hear that banks through BoT and TBA are going to lower rates. This is good news.
“As the TBA Chairman (Abdulmajid Nsekela) said, we will start seeing banks lowering them soon,” President Samia said amid huge applause from over 300 participants at the COFI," Ms Samia said.
She said banks are awash with significant liquidity as it is demonstrated on bonds auctioning.
“This is retarding private sector loan growth, which is growing at 4.3 per cent annually and is not a healthy situation for the economy,” she said.
President Samia said there is nothing wrong for banks to participate in bond markets, but they should channel more funds to increase capital for the private sector.
The president also said the government will take all of COFI deliberations coming from the four sessions namely Economic Growth and Sustainability during and beyond Covid-19 pandemic: Priorities and Policy Options and Digital Currencies: Experience, Risk and Regulatory Issues.
Others are Accelerating Digitalisation for Recovery and Sustainability Growth and Scaling up Private Sector Credit beyond Covid-19 pandemic: Role of Government, Financial Institutions and Private Sector.
Equally, President Samia called on the financial institutions to come up, during COFI, with workable plans that will help kick start the economy that has been badly hit by Covid-19 pandemic.
“The government will take all suggestions coming from here, to rejuvenate the economy and place it back on its tracks.
“Be it on digitisation of the financial sector in scaling up private sector credit or introducing of central bank digital currency,” she said.
The economy grew almost 7.0 per cent before coronavirus pandemic and dropped to 4.8 per cent last year. BoT want the GDP growth to reach 8.0 per cent in next five years.
Earlier, TBA Chairman Abdulmajid Nsekela told the conference that the banking sector as part of the society wants the market to have affordable interest rates to push the economy forward.
“After simulation the banks now are ready to lower interest rates...in coming days you will see some starting lowering the rates,” Mr Nsekela, who is also a CRDB Bank Managing Director, said.
The Chairman though did not say the percentage to be lowered but promised President Samia that bank will start doing so.
However, he said though banks are looking forward to lower lending rates, some lenders are not honouring their loan paying obligations, thus challenging the sector to its teeth.
“Currently, there is pending court cases totalling 1.2tri/-. This is a huge challenge for the financial sector,” Mr Nsekela said.
He said banks are considering further increasing the amount of loan channeling to agricultural sector especially on value addition investments.
Minister for Finance and Planning Dr Mwigulu Nchemba called on banks to come up with innovative proposals that will woo youths to join the private sector for self-employment.
“Banks, please come up with these proposals so as the government can come up with policy that enables youths to venture into private sector,” Dr Nchemba said, adding the government wants the proposals to be incorporated in 2022/23 fiscal year.
BoT Governor Prof Florens Luoga said after some central bank monetary interventions they are expecting financial institutions to also lower market interest rates.
“(BoT) has made a number of policy interventions, we want loans, especially to agriculture to be less than 10 per cent,” Prof Luoga said.
Some of the interventions are like lowering statutory minimum reserves from 7.0 to 6.0 per cent last July.
BoT also set aside some 1.0tri/- fund that is to be loaned to commercial banks at 3.0per cent for enabling them to lend agricultural processing projects at less than 10 per cent.
Prof Chacha Wangwe, from Daima Associates, said high lending loan rates of around 18 per cent denies business people the opportunity of making a profit.
"This makes some, those faithful firms, to fail paying back loans once there are minute interruption on business plan,” Prof Wangwe, a respected economist, told the ‘Daily News’.
He said an interest rate that is not exceeding 12 per cent is acceptable to enable businesses to make profits. Though the professor said some studies should be conducted to determine the appropriate lending rate.
The banks are now embracing digital technology to not only cut costs but also increasing financial inclusion which for banks is still low at less than 20 per cent.