Banks seek more funds to meet borrowers’ appetite

ANALYSTS say banks are opting for borrowing particularly bond issuance to finance the fast growing loan portfolios that outpaces deposit mobilisation.

The aggregate banking sector loan to deposits ratio crossed above 90 per cent since last June according to Bank of Tanzania’s Quarterly Economic Bulletin.

The Head of Research and Analytics from Alpha Capital Mr Imani Muhingo said above anything, this shows the opportunities for domestic banks as the demand for credit is still high, while private sector credit growth is 480bps higher than the central bank’s target.

“Bond issuance by the bank underscores the need of banks to turn to borrowings to finance their fast-growing loan portfolios that are outpacing deposits mobilisation,” he said.

The analysts’ views come after CRDB Bank got an approval from Capital Markets and Securities Authority (CMSA) to issue the first multicurrency green bond in the country with the big ticket size in Sub Sahara Africa.

The 300 million US dollar (780bn/-) corporate bond is the largest issuance in the market after NBC Bank 300bn/- issued recently and will be listed on both Dar es Salaam and London stock exchanges.

The announcement and details of the bond IPO and interest rates expected to be announced next Wednesday. The minimum amount offered per purchases starts at 500,000/-.

The loan to deposits ratio for CRDB reached 90.6 per cent in June 2023, from 85.0 per cent in June last year and 71.5 per cent in June 2021.

As a result, the net interest margin for CRDB has dropped from 80.8 per cent in last year to 70.8 per cent in June this year as the bank mobilises more expensive financing.

On its part, Zan Securities Limited Weekly Wrap-ups said being the first multicurrency green bond to be listed in the country its issuance might increase activity in the capital market from investors of both domestic and foreign counters.

The bond baptised ‘Kijani Bond’ which is also CRDB corporate colour, aims to support government’s efforts to ensure that the financial sector enables access to financial resources to finance development activities.

“This step is important,” according to CMSA Chief Executive Officer Nicodemus Mkama, “as it contributes to stimulating the growth of the private sector, the public and the country’s economy in general,”

CRDB Group CEO and Managing Director Abdulmajid Nsekela said the funds raised from the sale of the Kijani bond will be used to invest in projects mitigate the effect of the climate change, preserve the environment and have a positive impact on society.

“Sectors that will benefit from the bond proceeds will be lent to agriculture, renewable energy, sustainable industries, construction, water, health and education,” Mr Nsekela said adding:

“This step is important, as it will facilitate the implementation of the United Nations Sustainable Development Goals (SDG), especially goal number seven that encourages access to clean energy for all.”

The government has put in place a strategy to encourage the use of renewable energy, so the issuance of the Kijani bond will facilitate the implementation of not only the government’s goals but also its ambition to invest in clean energy while meeting the SDG directives.

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