Saturday, January 30, 2016

Banks to lose billions in new govt directive

 

By The Citizen Reporter __ @TheCitizenTz __ news@thecitizen.co.tz

Dar es Salaam. The government has directed that billions of shillings held in commercial banks by ministries, public corporations and local government authorities be immediately transferred to the Bank of Tanzania (BoT).

The order made early in the week will see many commercial banks lose significant deposits.

It could also disrupt some of the major bank’s liquidity in the short term. Commercial banks are said to be holding an upward of Sh600 billion at any given time from the different government entities affected by the new directive.

And economists said yesterday the move by the government was a double-edged sword with positive implications on how the government manages its revenue. But it will also possibly raise the cost of borrowing from commercial banks.

“The government will be more efficient in managing its financial pot and also earn more and higher interests on BoT loans to the private banks. But this may also push up loan interests by the larger economy as the banks seek to recover their expensive investments,” said Prof Delphin Rwegasira of the Economics Department of the University of Dar es Salaam.

Prof Haji Semboja, also of the University of Dar es Salaam’ Economics Department said it was not a very good idea to mop out government deposits from the commercial banks.

“It is dangerous to place such huge amounts of money under BoT where the executive has a free say on the use of the funds. It could be open to abuse,” said Prof Semboja.

He said the move would demoralise the private sector and distance it further from government. The government should be a partner with the private sector but this move could leave banks struggling to raise capital, which in turn makes borrowing costly,” he cautioned.

Prof Semboja said the government should encourage its agencies to operate commercially and make profit instead of relying on State subventions.

Prof Honest Ngowi of Mzumbe University said the effect would, however, be determined by how much money the government was talking about.

Treasury Registrar Laurence Mafuru issued the government notice on Monday requiring public entities to move their banking operations to the central bank by tomorrow.

The directive covers revenue income, any other collections and also State subvention that must be immediately moved to accounts in the nearest BoT branches. “These accounts will be denominated in the relevant currency of your collections or revenue,” stated the notice.

By now, the agencies’ accounting officers should have opened new holding accounts in branches of the central bank near them, according to the notice seen by The Citizen on Saturday.

By Monday, all the credit balances lying in respective current accounts in the various commercial banks in the country should have been moved to the new BoT accounts. They will only retain one account each with commercial banks for their ordinary monthly transactions, it was ordered.

“I would like to reiterate that the measures take immediate effect and you are required to report compliance not later than January 31,” said Mr Mafuru.

The new move, it would appear, is a follow-up on a concern raised by President John Magufuli during his address to members of the business community when they paid him a courtesy call shortly after his swearing in.

Speaking during the December meeting at State House, President Magufuli decried the fact that commercial banks were not reaching out to the common man yet were benefitting from huge government deposits.

He wondered why public corporations deposited billions of shillings in commercial banks, some of which did not earn them interest.

“We have currently about 54 big commercial banks in Tanzania and all these banks are merely trading with government,” said the President.

President Magufuli revealed that by then public firms had deposited Sh550 billion in commercial banks, money which they were using to earn huge profits through treasury bills and bonds at BoT.

“This amounts to government doing business with its own money. And some of the money deposited by public firms do not earn interest,” said the Head of State.

The government explained in the notice on Monday that the move was aimed at enhancing government and public effectiveness and efficiency in cash management.

According to the notice, the institutions should maintain an operational account at their preferred commercial bank with a minimum of balance to cater for their monthly operational expenses as per their monthly cash flow projections.

The notice, copied to the Chief Secretary, the permanent secretary in the ministry of Finance and Planning, permanent secretaries to parent ministries and the BoT Governor, also directed the institutions to ensure that all credit balances in their operational accounts received not less than the prevailing interest rate in the market.

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