Lending pace to private sector in Tanzania was slowest in 12 months

Friday July 10 2020


By Josephine Christopher @JocfineQ jchristopher@tz.nationmedia.com

Dar es Salaam. Issuance of loans to the private sector reached its 12-month slowest pace in May this year as Tanzanian banks faced low demand for credit following the outbreak of Covid-19 which severely hit some sectors of the economy.
The Bank of Tanzania (BoT) report for June indicates that the growth of credit to the private sector slowed from 5.8 percent to 5.1 percent in the year to May 31, 2020 - the lowest since May 2019.
“The slow growth was on account of repayment of loans by some borrowers, coupled with subdued demand for loans by the hospitality industry and schools owing to coronavirus,” the BoT said in its Monthly Economic Review for June.
The hospitality industry is one of the hardest hit sectors by the Covid-19 pandemic due to suspension of air travel and closure of hotels and restaurants to curb spread of the viral disease.
According to the report, annual growth of credits to hotels and restaurants, as well as agriculture and mining, were all in the negative trend - meaning they were in recession.
Hotels and restaurants lending was at -0.5 percent in the year that ended on May 31, 2020, while agriculture and mining were at -5 and -6 percent respectively.
However, the cost of borrowing decerased, as interest rates charged by banks on loans and those offered on deposits exhibited a general declining trend.
The central bank said: “Overall, lending rates decreased by 38 basis points to 16.83 percent from 17.21 percent in the corresponding month of 2019, while one-year lending rate declined by 22 basis points, to 16.86 percent.”
The economic activities which loans grew fast include building, construction, transport, communication and personal loans (mostly small and medium enterprises), according to the central bank report.
The profile of outstanding loans indicates that much of the credit was extended to personal-related activities, trade and manufacturing.
The share of personal lending to total loans was 31.7 percent while trade and manufacturing accounted for 17.3 percent and 11.5 percent, respectively.
Moreover, in May 2020, the Monetary Policy Committee (MPC) approved measures to limit the impact of coronavirus on the economy.
The measures include lowering the statutory minimum reserve requirement the amount of cash banks must maintain as reserves from seven to six percent to provide lenders with additional liquidity.
The central bank also reduced the discount rate at which commercial banks borrow from the central bank from seven to five percent.