THE Covid-19 pandemic devastated local banks’ lending to the private sector, but the lenders are still upbeat of a bright future, as the global economy normalises and the government takes measures to boost credit intermediation.
The bankers expressed the optimism here on Friday during the 20th Conference of Financial Institutions (COFI) and vowed to increase loans as a measure to boost productive activities and support post-pandemic growth recovery of the national economy.
The banks said they are fiscally fit to up the credit extending game as latest sectoral financials show and ready to lend at relatively lower interest rates.
However, the Chief Executive Officer of NMB Bank Plc, Ms Ruth Zaipuna, said the endeavour will pay off with required concerted efforts and collaborations to deliver the desired results.
“The Covid-19 pandemic has had adverse impact on credit to private sector extended by banks,” Ms Zaipuna noted in a presentation titled: Scaling up Private Sector Credit beyond Covid-19 Pandemic: Role of Government, Financial Institutions, and Private Sector.
“To spur credit growth to the private sector post the Covid-19 pandemic, a number of actions have to be taken by all key stakeholders. These actions require a collaborative approach in order to ensure sustainable impact on the economy,” she explained.
The NMB leader said there are already conditions to support increased private sector lending and the requisite sectoral resilience to back up credit growth revival.
Ms Zaipuna told the COFI 2021 gathering that almost two years since the onset of the pandemic; the global economy has staged its most robust post-recession recovery in 80 years.
In 2020, the global economy decelerated by 3.1 per cent but the IMF now expects world output (GDP) to grow by 5.9 per cent in 2021. Nationally, the GDP outturn is forecast at five per cent this year from 4.8 per cent in 2020 as impact of Covid-19 on economic activities continue to decline.
On Thursday, the Governor of the Bank of Tanzania (BoT), Prof Florens Luoga told the conference participants that the national economy will grow by 5.2 per cent in 2022. The two-day conference principally sought to look at the national economy post Covid-19.
Ms Zaipuna said the other reason for positive credit upturn optimism emanates from supportive policy measures by the authorities to stimulate lending.
She said timely national policy responses to cushion the economy from being devastated by the effects of Covid -19 also ensured that the local banking sector remained resilient during the hard times.
Whereas assets of the banking sector went up 4.16 per cent in 2020 to 34.68tri/-, deposits mobilisation increased by nearly four per cent to 24.77tri/-.
At 17.19 per cent in 2020 against the previous year’s ratio of 17.04 per cent, the banking sector’s core capital was well above the legal minimum requirement of 10 per cent.
Ms Zaipuna said the positive capitalization outlook signified the banks sustained ability to meet maturing obligations. Most banks also continued to make profits with NMB Bank posting the historic income of 206bn/- in 2020.
“With the sector’s stability and resilience, banks continued to provide services in the pandemic period while ensuring health and safety of staff and customers,” Ms Zaipuna said noting that the lenders also contributed over 1bn/-to national Covid-19 relief efforts.
The banks promoted increased use of alternative payment channels and widened access to digital services by increasing transaction limits and foregoing certain fees.
Consequently, the number and value of electronic transactions went up to 126tri/-in 2020 from 99tri/-in 2019.
“The growth was partly on account of the BoT’s policy measures to encourage use of digital financial services, including increasing mobile money transactions and balance limits,” Ms Zaipuna said.
Other policy measures adopted in 2020 to remedy and cushion the economic impacts of Covid-19 were reduction of haircuts on government securities and cutting the statutory minimum requirement (SMR) to six per cent.
BoT also reduced the discount rate to five per cent to ease borrowing costs for commercial banks and improve their liquidity. It also allowed the banks to discuss restructuring of loans with borrowers hit hard by the pandemic.
In order to provide great impetus to fast increase credit to the private sector and lower interest rates, thereby hastening recovery of the economy, BoT implemented other measures in July 2021.
These included further SMR reduction to loans extended to farmers and lowering interest rates on farming credit. BoT also relaxed agency banking requirements for increased loanable funds to banks.
Ms Zaipuna said the recent introduction of a special loan facility for banks worth 1tri/-for on-lending to the private sector will increase the liquidity of banks and reduce the price of credit.
“These measures rolled out by the Bank of Tanzania in July 2021 and the recovery of global activity from the pandemic has positively led to the increase credit to private sector,” she noted.
Pre-pandemic figures show that credit to the private sector grew by 11.1 per cent in the year ending December 2019. However, the trend reversed drastically following lockdown of the economies in most of Tanzania’s main trading partners.
By mid-last year, private sector lending had dipped to 5.5 per cent due to subdued demand for new loans, particularly in trade activities. The situation worsened to unprecedented levels in the following months.
Ms Zaipuna said the situation now looks much better as the global economy continues to recover while the government and banks make more efforts to increase credit availability.