The country’s banks have come under heavy regulatory pressure over the past year to reduce their exposure to doubtful and non-performing loans (NPLs).
The average ratio of bad loans to gross loans in the banking sector reached 11.3 per cent at the end of April 2018 from 10.8 per cent a year ago, according to BoT data, more than double the regulator’s maximum level.
The central bank wants banks to cut their ratio of bad loans to gross loans to a maximum of five per cent.
Latest financial results published by commercial banks show that the majority of banks are yet to meet BoT’s stated five per cent target on the NPLs ratio, but progress is being made to address the stubborn bad-loans problem.
The total value of the portfolio of bad loans and advances of the four biggest banks fell to 586.3 billion/- in the third quarter of this year from 747.8 billion/- in the second quarter of this year.
In banking, commercial loans are considered non-performing if the debtor has not made any payments within 90 days, or is 90 days past due.
CRDB Bank Plc, the country’s biggest bank by assets and customer deposits, said the ratio of its NPLs to gross loans fell to 8.97 per cent in the third quarter of this year (Q3 2018) from 13.4 per cent in the previous quarter (Q2 2018).
Tanzania’s second-biggest bank, NMB Bank Plc, reported an NPLs ratio of 5.8 per cent, which is up from five per cent previously, but still remains well in reach of the BoT target.
Similarly, the No.3 bank in the country, the National Bank of Commerce (NBC), reduced its bad loans ratio to 10.1 per cent in the period under review from 11.4 per cent previously.
The financial results for the quarter ended 30 September 2018 show that Standard Chartered Bank Tanzania Ltd, the country’s fourth-largest bank, slashed the ratio of its NPLs to just 0.6 per cent from 5.2 per cent in the previous quarter.
CRDB Bank recorded the biggest decline in the value of its bad loans from 436.48 billion/- previously to 288.66 billion/-, while the value of NPLs at NMB increased to 192.38 billion/- from 159.1 billion/-.
NBC Limited reported that the value of its bad loans portfolio fell to 101.35 billion/- in the third quarter of this year from 112 billion/- in the second quarter of this year.
Standard Chartered Bank said in its latest financial results that its non-performing loans and advances were trimmed to just 3.88 billion/- in Q3 2018 from 40.29 billion/- previously.
Citibank Tanzania Limited, one of the top 10 largest banks in Tanzania by assets and deposits, recorded an NPL ratio of zero per cent, similar to Guaranty Trust Bank (Tanzania) Limited.
Small lenders face big challenge
But some small lenders continued to struggle with disproportionately high levels of bad loans, with some banks reporting NPLs that were up to six times higher than the maximum five per cent set by the BoT.
The state-run TIB Development Bank reported a bad loans ratio of 33 per cent, unchanged from the previous quarter.
The China Commercial Bank saw its ratio of NPLs to total gross loans spike to 32 per cent in the third quarter of this year from just two per cent previously.
The First National Bank Tanzania Ltd (FNB) said its ratio of bad loans to total gross loans declined to 23.6 per cent from 25.5 per cent.
Equity Bank (Tanzania) Ltd said its NPLs ratio almost doubled to 12.9 per cent from 6.89 per cent previously.
BoT has warned local banks that it would not hesitate to take regulatory action against financial institutions with deteriorating assets.
The move follows instructions from President John Magufuli for the central bank to clean up the country’s financial sector.
The BoT in May this year approved the merger of two small state-owned banks, Twiga Bancorp and TPB Bank Plc, as part of a plan to improve financial stability and reduce the number of government-owned lenders.
The decision is part of a drive to counteract a spike in bad loans since 2015 that has hit bank profits and stifled private sector lending, in turn undermining economic growth.
Magufuli ordered the central bank in March this year not to bail out struggling banks as the government tries to control rising bad loans.
The International Monetary Fund (IMF) said in January that the growth of credit to the private sector had stagnated, partly due to the deteriorating quality of the loans.
It urged the government to tackle bad debts to reduce financial sector vulnerabilities and revive the growth of credit to the private sector.
The central bank revoked the licenses of five “critically under-capitalised” community banks in January to safeguard the sector’s stability.
In August this year, the BoT took over the administration of Bank M, one of the largest banks in the country, due to critical liquidity problems.
However, despite the on-going regulatory action, the central bank said in a recent report that preliminary results of a joint World Bank/IMF assessment revealed that Tanzania’s financial sector remains “generally sound and stable.”