Interbank rate shoots up as illiquidity bites

Dar es Salaam. The interbank money market rate rose to 3.32 per cent as illiquidity bit.

A Bank of Tanzania report shows that the rate climbed on Friday last week, the highest in one year, before declining to 3.15 per cent on Monday this week

That happened despite the central bank’s use of policy instruments to cut borrowing costs.

The report shows that Sh147.5 billion was traded overnight with rates ranging from 2.77 per cent to 3.32 per cent last week, compared with Sh155 billion traded during the previous week at between 2.39 per cent and 2.80 per cent.

Interbank money market is the market for short-term lending between banks, usually involving the trading of funds with a maturity of between one day (overnight or even shorter) and one year.

The latest Financial System Stability Assessment for Tanzania by the International Monetary Fund (IMF) showed that banks’ asset quality had deteriorated in recent years and provisioning needs had increased.

“Credit growth has fallen precipitously, corporate debt loads have risen and their cash flows are weak,” the IMF assessment released last week.

The IMF Executive Board called on Tanzania to strengthen the banking supervision to reduce nonperforming loans and increase provisioning and buffers to manage liquidity, credit, and concentration risks.

IMF directors noted that despite favourable macroeconomic conditions, financial stability challenges were significant with deteriorating asset quality, falling credit growth and liquidity pressures.

They stressed the need to improve asset quality, address nonperforming loans and increase capital buffers in the banking system.