Bad loans on the rise again as Covid-19 pandemic hits hard

Dar es Salaam. Levels of non- performing loans (NPLs) are on the rise again in Tanzania's  banking industry as businesses across the board feel the pinch of the Covid-19 pandemic.

 The Bank of Tanzania’s June   2020 monetary policy statement indicates that the ratio of NPLs to gross loans had increased to 11 percent in April after a significant decrease recorded towards the end of last year.

NPLs declined from 11.1 in April last year to 9.8 percent in December, but rose again to 11 per cent in April 2020.

This means that the quality of assets deteriorated in the wake of Covid-19, which has disrupted businesses around the globe.

“The trend is attributed to slowdown of some businesses such as tourism,” the report says in part. However, the central bank adds that measures taken to mitigate the impact of Covid-19 will yield positive results and contain the situation.

 BoT says far-reaching monetary and fiscal policy measures it has taken to cushion the economy from the impact of the pandemic will help to reduce the risk of further deterioration of banks’ loan portfolios. The measures include granting flexibility of regulatory requirements for loan restructuring.

 “The bank will continue to enforce risk-based prudential requirements, credit underwriting standards and use credit information systems in order to reduce NPLs close to the desired level of not more than five percent.”

 Other measures, according to the central bank, are implementation of a consumer protection framework and ensuring that bank employees adhere to the Tanzania Banker’ Association code of conducts. 

Experts and bankers who spoke with The Citizen by telephone yesterday said that a major factor behind the development was Covid-19, noting that the tourism and hospitality industries were still struggling to recover.

TPB Bank chief executive Sabasaba Moshingi said a good number of industries financed through bank loans had been hit hard by the pandemic. However, he added, unlike countries that opted for full lockdowns, the NPLs trend in Tanzania was not potentially catastrophic. Mr Moshingi said he was optimistic NPLs would start to go down again in the next one to three months.   

 “A few customers whose loan payments were deferred due to the coronavirus have indicated their willingness to start servicing their loans again,” he said.

Prof Honest Ngowi of Mzumbe University linked high NPL levels to disruption of supply chains, which made it difficult for businesses to access raw materials due to lockdowns in other countries.

 As a result, sales, revenues and profits all slumped, leading to defaults. 

“Business are struggling indeed, but we hope that as time goes by, the situation will improve, although we shouldn’t expect this to happen overnight,” Prof Ngowi said. Economist Donath Olomi attributed high NPL levels to cash flow challenges caused by business shocks in the wake of the Covid-19 pandemic. 

“However, if the (Covid-19) situation remains as promising as it is now, I’m confident that businesses will soon start to recover,” he said.

“The good thing is that our economy is diversified, and this mitigates  any business shocks caused by devastating crises such as the Covid-19 pandemic.”