BoT: Lower NPLs to boost lending, cut borrowing cost

TANZANIA: THE Bank of Tanzania (BoT) has said the decline in non-performing loans (NPLs) is anticipated to incentivise lending to the private sector and reduce the cost of borrowing.

The latest Monetary Policy Statement (MPS) shows that the banking sector’s quality of assets improved ratio of non-performing loans to gross loans declined to 4.3 per cent in last April from 5.3 per cent last June.

“The decrease in non-performing loans is set to boost lending to the private sector and cut down the cost of borrowing,” the MPS report stated.

The Head, Research and Financial Analytics at Alpha Capital, Iman Muhingo said the decline in NPLs signifies the increased borrowers’ capacity to service their loans.

“The decline in NPL implies that the banking sector is healthy and stable,” he adding that banks’ have bolstered their lending and monitoring policies and capacity to work-out defaulted loans.

Mr Muhingo said as the NPLs continue to decrease the banking sector’s profitability-the ability to lend are projected to take an upward trend.

He further noted that from the economic point of view, the fall NPLs indicates that the business sector is growing positively giving it ability to borrow and payback their debt. According to MPS report, the BoT implemented measures to further reduce NPLs.

The measures included regulatory reforms to strengthen risk management practices in the banking sector.

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“Specifically, banks were required to improve credit underwriting standards, implement strategies to reduce NPLs and submit credit information to the credit reference system,” the MPS report stated.

Additionally, banks were required to adhere to the Tanzania Banker’s Association Code of Conduct, which includes strengthening staff integrity.

As a result, the financial sector was stable and resilient to short-term shocks, with all indicators hovering within the desirable thresholds.

The banking sector, which comprises the largest share of the financial sector, was adequately capitalised, liquid and profitable, leveraging technology in delivering financial services.

The core capital adequacy ratio was 19.4 per cent, above the minimum regulatory requirement of 10 per cent.