BANKS are holding a whooping 1.3tri/- of non-performing loans in the last quarter of 2016, an amount equivalent to 4.5 per cent of the total budget for the 2016/17 financial year, Bank of Tanzania unedited statistics show.
The amount which underscore the challenge of rising default risks by borrowers due to tight liquidity, is above total revenue collection by Tanzania Revenue Authority for January this year which reached 1.14tri/-.
It is also clearly beyond the amount set aside in the current financial year for the initial phase of construction of the standard gauge railway which begins from Dar es Salaam to Morogoro. The government set aside 1.0tri/- during the current financial year for initial construction of the railway.
The ratio of non-performing loans to gross loans, increased to 9.5 percent from 6.4 percent recorded at the end of December 2015. World Bank data show nonperforming loans stand 8.5 per cent on average as of last year, hence elevating risks for default.
The country benchmark for NPLs is 5.0 per cent. The top five banks with large amount of non-performing loans is led by CRDB bank which is the largest in terms of assets and market shares.
It has largest amount of non-performing loans which reached 436.7bn/-. It is trailed by Development Finance Institution (DFI), a subsidiary of TIB Development Bank Ltd whose non-performing loans reached 238.5bn/-.
Others are NMB Bank, the largest bank in terms of profitability which posted 84.3bn/-, NBC (75.9bn/-), Standard Chartered Bank (65.6bn/-) On the ratio of non-performing loans to total loans, the top five are DFI (36.32 per cent), BancABC (34.5 per cent), CBA (26.16 per cent), EcoBank (16 per cent) and CRDB (13.5 per cent).
The government acknowledges the increase in non-performing loans is worrisome as it threatens financial stability of banks through deterioration of assets.
In their letter of intent to the International Monetary Fund that was published in January, the Minister for Finance and Economy, Dr Philip Mpango and the Central Bank Governor, Prof Beno Ndulu said the quality of the banking sector’s assets deteriorated, as reflected by the increase in the NPLs to 8.7 per cent from 6.6 percent recorded at the end of June 2015. According to their letter, the sectors with the highest level of NPLs were agriculture, trade and manufacturing.
The BOT’s medium-term goal is to bring the overall NPL ratio to below 5 per cent. Dr Mpango and Prof Ndulu said in response to the increase, the central bank has directed banks with high NPLs to formulate and implement measures to bring the ratio to at most 5 per cent.
Most banks have committed to take more aggressive measures in the recovery of nonperforming loans; strengthening internal credit process and risk management by improving credit analysis including usage of credit reference bureau reports and monitoring processes; and renegotiating some of the repayment terms to provide more affordable and flexible repayment plans.
It is expected that execution of the plans will be completed within two years ending July 2018. Banks are required to submit quarterly progress reports, which will be used by the BoT to monitor banks’ progress in reducing NPLs.
In addition, the BoT will review implementation of the plans during on-site examination of respective banks, and will determine appropriate course of action depending on the status and position of each particular bank. These may include suspending respective banks from issuance of new loans and requiring them to put more emphasis on loans recovery.