THE Bank of Tanzania (BoT) has injected 1tri/- to financial institutions for lending in the private sector in an effort to mitigate macroeconomic impacts of Covid-19 pandemic in the country.
BoT governor, Professor Florens Luoga told a news conference in Dodoma yesterday that following the Covid-19 pandemic, the government decided to come up with policy measures to promote credit to private sector and lower interest rates “Prior to the outbreak of Covid-19 pandemic, macroeconomic conditions in Tanzania were stable.
The economy experienced robust growth, which averaged 6.7 per cent from 2010-2019 and inflation declined to as low as 3.8 per cent in 2019,” he said. “Credit extended to the private sector by banks grew at 15 per cent, while lending rates declined to 17 per cent from more than 20 per cent.
The pandemic has affected economic activities, partly due to lockdown measures and travel restrictions implemented in countries which trade with Tanzania. In this regard, Prof Luoga said, the government has been taking measures to lessen the impact of the pandemic on economic activities and promote growth.
He noted however that the pace of growth slowed to 4.8 per cent in 2020 from 7 per cent in the preceding year and private sector credit growth also has been low, ranging from 2.3 per cent to 9.1 per cent. Meanwhile, interest rates on loans charged by banks have remained high, at about 17 per cent, despite monetary expansion and other measures adopted.
In order to provide a great impetus to fast increase in credit to the private sector and lower interest rates, beginning yesterday, BoT decided to implement several policy measures, among them, reduction of statutory minimum reserve requirement (SMR). A bank that extends credit to agriculture shall be eligible for a reduction in the SMR amount, equivalent to the loan extended.
In addition, a bank shall be required to submit evidence of lending to agriculture at an interest rate not exceeding 10 per cent per annum.
This measure intends to increase lending to agriculture, which is the mainstay of Tanzanians. It also aims to reduce interest rates on loans to agriculture. Other measures, according to Prof Luoga, is the introduction of a special loan amounting 1tri/- to banks and other financial institutions for on-lending to the private sector.
“The Bank of Tanzania shall provide a special loan to banks and other financial institutions at 3 per cent per annum for pre-financing or refinancing of new loans to the private sector,’’ he said, adding that a bank wishing to access the special loan facility shall be required to charge interest rate not exceeding 10 per cent per annum on loan extended to the private sector. He said the measure intends to increase liquidity to banks and reduce lending rates.
Other initiatives are reduction of risk weight on loans. BoT, according to Prof Luoga, expects to reduce risk weight on different categories of loans in computation of regulatory capital requirements of banks.
The measure will provide opportunities to banks to extend more credit to the private sector than before. The Central Bank has also lifted the agent banking eligibility criteria.
He said the BoT has removed the regulatory requirement of business experience of at least 18 months for applicants of agent banking business. Instead, applicants for agent banking business shall be required to have a National ID Card or National ID Number (NIN).
“This policy measure is expected to contribute to an increase in loanable funds to banks through deposit mobilisation. The measure also intends to lower lending rates,’’ he said.
BoT has also decided to remove the Limitation of interest rate paid on mobile money trust accounts.
According to the BoT boss, mobile money trust account balances held with banks shall be eligible for interest rates not exceeding the rate offered on savings deposit accounts by the respective bank. This will contribute to lowering the cost of funds to banks, thus helping to reduce lending rates.