This is part of measures taken to promote credit to the private sector and lower interest rates as effects of COVID-19 have affected national economic activities, BoT Governor Prof Florens Luoga said yesterday.
Addressing a press conference here yesterday, he said that one of the outcomes of the monetary policy shift is that banks and other financial institutions shall be lowering lending rates, enhance deposit mobilization.
The pandemic has affected economic activities, partly due to lockdown measures and travel restrictions implemented in countries which trade with Tanzania, he stated, noting that BoT had reduced statutory minimum reserve requirement (SMR) for commercial banks and other financial institution.
It has also relaxed agent banking eligibility criteria and exercised limitation of interest charges paid on mobile money trust accounts, he stated.
In order to provide impetus to propel an increase in credit to the private sector and lowering interest charges to hasten economic recovery, BoT is implementing the policy measures with effect from thisi week, the governor asserted.
Operating the reduction on SMR shall be premised on banks that extend credit to agriculture, in which case the SMR deposit level will be diminished by the same amount as the loan extended, he said.
In addition, banks shall be required to submit evidence of lending to agriculture at interest rate not exceeding ten percent per annum for this facility to be exercised, a measure intended to increase lending to agriculture as the mainstay of the country’s subsistence economy and workforce.
BoT has removed the regulatory requirement of business experience of at least 18 months for application of agent banking business, with applicants for agent banking business merely being required to have national identity (ID) card or number, he stated.
The action is expected to contribute to enhance the supply of loanable funds to banks through deposit mobilization and lower lending rates, he said, underlining that through the policy changes, mobile money trust account balances held with banks shall be eligible to limited interest charges.
It will be applicable for loans not exceeding the rate offered on savings deposit account by the respective bank, thus contributing to lowering the cost of funds to banks and helping to reduce lending rates, he stated
BoT shall provide a special loan to banks and other financial institutions at three percent per annum for pre-financing or re-financing of new loans to the private sector, he stated.
Banks wishing to access the special loan facility shall be required to charge interests not exceeding ten percent per annum on loans extended to the private sector, with intention to increase liquidity in banks and reduce lending rates, the governor explained.
BoT will similarly reduce the risk weight on different categories of loans in computation of regulatory capital requirement of banks, in an effort to create opportunities for banks to extend more credit to the private sector than it has been the case for a while, he said.
Prof Luoga noted that the measures have been taken in accordance with the BoT Act, Cap.197 and the National Payment System Act, Cap 437, with BoT set to provide additional details to banks, financial institutions and mobile transactions service providers on the measures adopted.
“In addition to these measures, BoT has directed banks and other financial institutions to implement strategies of lowering lending rates and increase deposit mobilization,” he stated.
Earlier, the governor explained that prior to the outbreak of the COVID-19 pandemic, macroeconomic conditions in Tanzania were stable as the economy experienced robust growth.
This averaged 6.7 percent from 2010-2019 and inflation declined to as low as 3.8 percent in 2019. Credit extended to the private sector by banks grew at 15 percent annually while lending rates declined to 17 percent from more than 20 percent a few years earlier, he stated.
While COVID-19 has affected the economy, the government has been taking measures to lessen the impact of the pandemic on economic activities and promote growth, he said.
Despite the steps by the government, the pace of growth slowed to 4.8 percent in 2020 from seven percent in the preceding year, with private sector credit growth also diminishing from 2.3 to 1.9 percent.
At the same time interest rates on loans charged by banks have remained high at about 17 percent, despite monetary expansion and other measures adopted, he added.