2017 tough year for borrowers

Dar es Salaam. As banks moved to rein in on mounting non-performing loans, and adjust to new economic realities, individual borrowers gradually found themselves losing out on access to credit.

Bank loans to individuals, which once recorded the fastest growth, have since diminished, following in the trend of agriculture, transport and communication, as well as building and construction in receiving the least credit.

With lenders continuing to face a liquidity crunch, the year ending March 2017 saw the annual growth of bank credit in the form of personal loans dwindle to -4.9 per cent. The rate was a contraction compared to the growth of 37.2 per cent that was recorded in a similar period in 2016, according to Bank of Tanzania (BoT) figures.

Credit to all major economic activities recorded slower growth relative to the year ending April 2016, except for trade.

The year to April 2017 saw credit to the private sector grow at an annual rate of 3.4 per cent to Sh16.716 trillion compared with 19.3 per cent growth in the corresponding period in 2016, BoT said in the Monthly Economic Review for May.

The general dip in issuance of personal loans was mainly associated with a ballooning of non-performing loans (NPLs).

The early part of 2017 was marked by many companies shedding jobs, a situation that exacerbated NPLs as many of those who were retrenched lost their main source of income, thus their ability to clear their loans.

According to the WB Tanzania Economic Update, the ratio of NPLs jumped to 11 per cent in June 2017 from 8.2 per cent during the same period in the previous year.

This rate was above the acceptable level of 5 per cent, the Bank reported.

Some analysts cited low business confidence due to perceived risks resulting from unpredictable policies and aggressive revenue collection.

“The government objectives of improving public administration, clamping down on corruption and strengthening tax administration are positive, but the transition has caused uncertainty, which has impacted on private sector investment decisions,” Azania Bank’s Business Ventures and Industrial Financing manager Godwin Seiya, was quoted as saying, adding that hotels in particular were defaulting on loans, as they were no longer making money.

“NPLs eat into capital. We are now very selective in the provision of loans…we rarely provide loans to hoteliers and contractors working with the government,” he explained.

NMB Bank managing director Ineke Bussemaker associated the high level of NPLs to slack investments, resulting from economic hardships also linking the trend to the government’s move to sack 10,000 civil servants with fake certificates.

“Civil servants who lost their jobs due to fake certificates owe between eight and 10 banks Sh40-50 billion,” Ms Bussemaker said during a tour of Mwananchi Communications Limited offices at Tabata Relini in November.

“We are discussing with the government how to handle the matter, but it is only a fraction of the loan portfolio of Sh1.5 trillion held by civil servants,” she said then.

As 2018 commences on Monday, individuals seeking will be glad to see the back of 2017 and hope that the new year will usher in improved liquidity to enable banks to loosen purse strings.