IMF: Banking sector stable but vulnerable

TANZANIA: THE International Monetary Fund (IMF) has said the banking system is well capitalised and profitable but remains subject to persistent vulnerabilities.
The non-performing loans ratio declined to 5.3 per cent in June last year, from 7.8 per cent a year earlier, indicating an improvement in credit risk.
The IMF’s latest report stated that the capital ratios have remained stable in recent years, and the liquidity ratio remains above the regulatory minimum.
However, key vulnerabilities remain, including rapid credit growth, dollarisation and risk of loss of correspondent bank relationships relating to deficiencies in the anti-money laundering and combating the financing of terrorism (AML)/CFT) framework.
Granular banking sector data shows mixed performance and vulnerabilities among banks. The NPL ratio was above BoT’s 5.0 per cent benchmark for around half of the banks.
The mean Return On Equity (ROE) fell to 11.4 per cent in June last year from 18.5 per cent in December 2022 for banks with market share of assets above 1.0 per cent, representing around 90 per cent of system assets.
The mean liquid assets to short-term liabilities ratio for these banks declined to 38 per cent in June last year, from 81 per cent in December 2022.
One bank (accounting for less than 1 per cent of system assets) is below the regulatory minimum for capital adequacy and liquidity.
Another small bank also fell below the 20 per cent minimum ratio for liquid assets to short-term liabilities. Indicators for profitability, provisioning and liquidity, are highly dispersed among the banks.
An updated stylised sensitivity analysis using end June data found continued risk among some banks, but an improvement relative to end-December 2022.
The sensitivity analysis considered two scenarios to examine the potential capital adequacy effects of restructured loans turning non-per forming.
The first and second scenarios assumed that 50 per cent and 75 per cent of banks’ restructured loan portfolios turned non-per forming, respectively.
All banks were assumed to have a provisioning rate of 25 per cent for the new NPLs. Based on these assumptions, two banks are below the 12 per cent regulatory minimum capital adequacy ratio in the first scenario, and two banks are below the threshold in the second scenario.
Compared to the results reported in Country Report 23/153 based on end December 2022 data with the same assumptions used previously, one bank fewer was below the minimum capital requirement in each scenario.

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