Small banks struggle to attract deposits
Dar es Salaam. Small banks are struggling to attract deposits from customers to match growing demand for loans.
An analysis of latest financial statements shows that most microfinance lenders and a number of commercial banks have issued loans that exceed customer deposits.
Experts say this may expose such lenders to liquidity problems, considering the fact that banks largely depend on deposits to issue loans.
Banks were formerly required to retain at least 20 per cent of deposits, but this lower limit is no longer applicable.
“When a bank lends the entire deposits it holds, it puts itself at risk of liquidity problems. It becomes dependent on short-term funding such as inter-bank loans to meet its demand for money,” said Mr Lawrence Mafuru, managing partner at consulting firm Bankable.
The Bank of Tanzania requires all deposit-taking banks in Tanzania to maintain statutory minimum reserves (SMRs), which are kept in the clearing account with the central bank.
“The SMR rate can be revised downwards or upwards depending on monetary policy objectives, and this can increase or decrease liquidity within the banking industry,” said Mr Gwamaka Charles from BoT’s banking supervision department.
He added that the SMR rate was cut from eight per cent to seven per cent on July 1.
“That was done to provide banks with more liquidity and increase credit to the private sector so as to support economic growth,” Mr Charles said.
According to the Banking and Financial Institutions (Liquidity Management) Regulations of 2014, a bank or financial institution shall maintain minimum liquid assets amounting to not less than 20 per cent of its demand liabilities.
Liquid assets include cash, cheques, current account balances with the central bank, balances with other banks maturing within seven days and foreign currencies, among others.
A number of banks have reported lending out at least 100 per cent of customer deposits, signalling higher demand for loans compared to the rate at which they attract deposits.
Mwalimu Commercial Bank (MCB), which had Sh8.26 billion in customer deposits by the end of June, this year, issued loans totalling Sh16.3 billion. This means that the amount issued as loans was double the deposits held by the bank.
Shareholder funds decreased from Sh20 billion to Sh18.7 billion. MCB’s total assets were at Sh28.5 billion, according to the bank’s statement.
That happened even as deposits decreased in the last six months.
In the first and second quarters, deposits fell by five and two per cent, respectively.
Deposits held by Vision Fund Tanzania Microfinance Bank have been growing since the beginning of the year, but the growth did not match demand for loans.
As a result, total loans were three times deposits. The ratio of loans to total deposits was 317 per cent, while total assets increased by only 3.1 per cent to Sh36 billion.
The micro-lender held Sh7.5 billion in customer and special deposits, while loans were around Sh22.5 billion.
Finca Microfinance Bank, which recorded a mixed trend in deposits growth, loaned out about Sh53 billion, which was 191 per cent of total deposits.
Finca’s assets had been falling in the previous quarters. In the first three months of the year, assets decreased by five per cent and ten per cent in the second quarter.
Deposits also decreased by 17 per cent in the first quarter, but increased by three per cent in the second quarter.
Access Bank is another lender whose deposits and assets have been falling since the beginning of the year. Deposits declined by 11.89 per cent in the first quarter, and 8.3 per cent during the second quarter.
Assets fell by 14.18 per cent and 7.19 per cent, respectively, to reach 117.78 billion at the end of June.
The bank’s statement indicates that deposits were Sh77 billion, but it loaned out the equivalent of 111.55 per cent of deposits.
EFC Tanzania Microfinance Bank’s statement indicates that it issued loans totalling Sh11.2 billion against Sh5.5 billion in customer deposits at the end of June. Shareholder funds totalled Sh2.7 billion.
That represents a loan-deposit ratio of 202 per cent, according to the statement.
Microfinance deposits and assets remained static in the first quarter, but decreased by 15.6 per cent and 13.7 per cent, respectively, in the second quarter.
The statements indicate that MCB, Finca, Access and EFC banks made cumulative losses in the first half of 2019.
Letshego Bank said it issued loans totalling Sh27.5 billion, which represents 351 per cent of deposits. Assets decreased by seven and one per cent in the first and second quarters, respectively, and now stand at Sh37 billion.
The bank recorded a cumulative profit of Sh86 million by June, according to its statement.
Yetu Microfinance Bank, whish has Sh16.67 billion in assets, issued loans that are over four times deposits held by the lender.
The Sh13.25 billion in loans is equivalent to 433 per cent of deposits, which were growing in the first half of the year.
