In Summary
BoT deputy governor (financial stability and deepening) Bernard Kibesse said in Dodoma on Wednesday that Tanzania had opted for a policy as it studied how other countries in the region were handling the matter.
Dodoma. The Bank of Tanzania (BoT) is finalising a policy on interest rate caps, The Citizen has learnt. It is part of efforts by the government reduce the cost of credit, which is said to be prohibitively high for many Tanzanians.
BoT deputy governor (financial stability and deepening) Bernard Kibesse said in Dodoma on Wednesday that Tanzania had opted for a policy as it studied how other countries in the region were handling the matter.
“The relevant policy will be ready by March, 2018,” he said on the sidelines of the official opening by President John Magufuli of CRDB Bank’s main branch in Dodoma.
Speaking during the event, President Magufuli reiterated his call to commercial banks to lower their lending rates, saying the government was strengthening credit reference systems as a way of reducing non-performing loans (NPLs) in the banking system.
“That is why I want BoT to come up with a policy that will ensure uniformity of lending rates across financial institutions. We cannot build an industrialised nation with a system whereby each bank charges its own rates,” he said.
Tanzania’s financial system has grown from only three commercial banks in the 1990s to 58 currently.
However, the number has not helped to reduce the cost of borrowing. BoT figures show that as of September 2017, the average lending rate among commercial banks stood at 18 per cent against an average deposit rate of 9.8 per cent.
It was against the backdrop of exorbitant lending rates that neighbouring Kenya adopted legislation [the Banking (Amendment) Act, 2016] in September, last year, imposing limits on lending and deposit rates amid fierce opposition from bankers.
A year later (September 2017), however, Central Bank of Kenya (CBK) governor Patrick Njoroge hinted at the possibility of the law being repealed on the grounds it had adverse effects on the economy.
The effects include a slowdown in credit to the private sector after commercial opted to pump money into treasury bills that offer risk-free returns. Banks perceived the private sector – mostly small and medium-sized enterprises, low-income borrowers and first-time borrowers – as too risky.
But Dr Kibesse was quick to point out that Tanzania would not immediately go the Kenya way and would first analyse how Kenya had been affected and how a similar approach was being applied in South Africa.
“We have important lessons from Kenya and South Africa,” he said.
Analysts are of the view that the government has learnt a lot from other countries and that any policy will be based on this fact.
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