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By Al-amani Mutarubukwa
The Citizen Reporter
Dar es Salaam. High default risk is forcing banks to keep lending rates at levels that many potential clients are unable to borrow money. According to bankers, the default or premium risk in the country ranges from seven to 10 per cent.“This is very high compared with that of other financial markets in the world. It is estimated to be less than one per cent in the developed countries,” Tanzania Postal Bank managing director Sabasaba Moshingi told BusinessWeek recently in Dar es Salaam. “This means chances for the borrower to repay the loan are very minimal.”
Currently, commercial banks in Tanzania charge lending rates of between 14 and 24 per cent, which business operators consider inordinately high.
“It is not that we are pegging the rates at those levels deliberately. Rather the default risk is extremely high,” said National Bank of Commerce (NBC) managing director Lawrence Mafuru.Other determinants of lending interest rates are operational costs, profit margins and discount rates for some banks securing capital from the central bank.
Mr Mafuru, who doubles as the Tanzania Bankers Association chairman, said unless Tanzanians build the habit of repaying loans, lending rates would remain high.A report titled ‘The 2011 Tanzania Banking Sector Performance Review’ compiled by Ernst & Young indicates that the bad debts provision or write-offs rose from Sh18.5 billion in 2007 to Sh104.6 billion last year.
The Bank of Tanzania said it was taking final steps to establish the Credit Reference Bureau (CRB) to help lenders to choose who are good payers of loans and who are not.“We understand that lending rates by our banks are relatively high and since the market is liberalised, lenders compete freely without our intervention,” the Bank of Tanzania (BoT) director for economic research and policy, Dr Joseph Massawe, told BusinessWeek by telephone.
BoT is in final stages of setting up the bureau, and ‘decent’ borrowers will see interest on their loans drop to not more than 15 per cent.CRB is expected to become operational early next year. “We have finished issuing regulations to those interested in operating such bureaus; we want to have at least three of them so as we can compare notes. We are also finalising our process of setting up data collection on credit issued by commercial banks and repayment track record for each borrower,” he said.
“The basic thrust of the strategy is to reduce the uncertainty that banks have on whether or not somebody applying for a loan is going to repay the loan. When a bank has information on the track record of the loan applicant in repaying their loans it helps in the decision to lend and at a reasonable cost,” he said.
Under the new system, BoT will start monitoring customer habits in paying other bills including electricity and water to have a record of those who are fond of defaulting and those who have clean records.About four million Tanzanians have access to loan facilities provided by banks and non-banking financial institutions, data shows.
However, clients have been complaining that lending rates are too inordinately high to bring about meaningful economic changes although the country has at least 42 banks and non-banking financial institutions.
CRDB Bank, National Microfinance Bank, NBC, Standard Chartered, Citibank, Barclays, Stanbic, Exim, FBME Bank, Access Bank, Akiba Commercial Bank, Azania, BancABC, Bank M, Bank of Africa, Bank of India, Commercial Bank of Africa, Diamond Trust, Ecobank, Habib, I&M, International Commercial Bank, NIC Bank, People’s Bank of Zanzibar and the United Bank of Africa are among financial institutions operating in Tanzania.
Dar es Salaam Community Bank, Efatha, Kagera, Kilimanjaro Co-operative Bank, Mbinga, Mkombozi, Mufindi, Mwanga, Tandahimba Community Bank, Tanzania Women Bank, Uchumi and Njombe Community Bank are in categories of regional and small banks.
Tanzania Investment Bank, Tanzania Postal Bank and Twiga Bancorp are among non-financial institutions.
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