BoT decries NPLs above 5pc

Dar es Salaam. Banks have been warned against increasing nonperforming loans (NPLs) above the acceptable threshold rate of 5 per cent.

The warning has been sounded by the Bank of Tanzania (BoT).

The ratio in the banking industry was 9.53 per cent in December 2016.

BoT Banking Supervision director Kened Nyoni told BusinessWeek that measures had been taken to address the issue of NPLs.

He said as part of the monitoring process, BoT had been conducting regular onsite and targeted examinations to identify internal weaknesses which might lead to an increase in NPLs including the quality of credit risk assessment.

He said banks having high NPL ratios are required to devise strategies including implementing aggressive recovery measures.

“Recently, we developed a credit reference system to assist banks to improve their lending decisions. As long as NPLs have not been decreasing proportionately with a decline in lending activities, the ratio of NPLs remains to be significant.”

All banks with NPLs ratio above 5 per cent are engaged and required to submit NPLs regularisation plans with clear timelines.

“The monitoring of NPLs regularisation plan is done on a monthly basis to ensure it’s implemented as planned,” he said.

BoT was reacting to recently released financial statements which showed commercial banks had alarming levels of NPLs.

A data analysis by The Citizen put at least four commercial banks on tight spot and on a potential to lose a staggering Sh372.524 billion if nothing is done by their management teams to contain their rising NPLs.

State-owned TIB Development Bank – which is meant to facilitate the much-needed loans for Tanzania’s industrialisation agenda – had Sh272.473 billion in NPLs as of March 31, 2017, having risen from Sh238.594 billion as at the end of December 2016.

NPL is the sum of borrowed money that is either in default or close to defaulting.

Ecobank Tanzania had Sh87.543 billion during the first quarter of this year, from Sh60.627 billion as of the last quarter of 2016 while government-owned Tanzania Women Bank (TWB) had Sh9.256 billion, rising from Sh8.321 billion.

Efatha’s NPLs rose from Sh933 million during the quarter ending December 2016 to Sh3.252 billion during the quarter ending March 2017.

Though some figures may seem lower than those in some largest banks, the four have the highest levels if measured by the NPL to total gross loans ratio.

For instance, with a ratio of 63 per cent, Efatha may potentially lose Sh63 in every Sh100 that it has issued out in loans.

Similarly, Ecobank Tanzania may potentially lose Sh57 in every Sh100 that it has issued out in loans.

The NPL ratios for TWB show that the bank stands to possibly lose Sh52 in every Sh100 that it has loaned while TIB Development Bank stands to likely lose Sh38 in every Sh100 that it has loaned to its clients – mostly government-owned entities.

NPL is the sum of borrowed money upon which the debtor has not made his scheduled payments for at least 90 days. An NPL is either in default or close to defaulting.

Bankers believe that an NPL that exceeds 15 per cent of a commercial bank’s total gross loans may indicate a point of no return.