Dar es Salaam. High borrowing rates in the banking sector have sparked a wide debate with some questions as to whether recent central bank tax measures have improved liquidity and reduced the cost of lending.
The debate was revived this week when Vunjo MP Charles Kimei pointed out in parliament that “the right monetary policy measures” had not produced the desired results, namely lower interest rates.
In July of this year, the Bank of Tanzania introduced in July some policy measures that established a solid framework for increasing liquidity and reducing the cost of lending to the private sector.
The BoT also said it would introduce a special loan fund of 1,000 billion shillings for banks and other financial institutions to access money for loans to the private sector.
The central bank also reduced the amount to be reserved for the BoT, equivalent to the amount of loans granted to agriculture, in order to increase the financing of agriculture at a lower interest rate.
However, Dr Kimei, who is the former CEO of CRDB Bank, said that “banks have just increased their profitability for the benefit of their shareholders instead of relieving borrowers”.
“There are problems with the monetary policy measures introduced by the Bank of Tanzania to improve liquidity and lower interest rates because they have not yet given in,” he said.
“I can tell you that the extra cash obtained by the banks after the measures went to government securities,” he said.
According to him, the central bank should now lower the yields of bonds and treasury bills which are usually used as a benchmark because government securities are risk-free.
“If the central bank auctions the risk-free government securities at, say 16%, which bank will charge less than that. I can swear the interest can’t go down that way. We need to change the system by announcing a cut in government bond rates, ”he said.
According to the BoT, aggregate lending rates were on average 16.55% in September this year, down from 16.75% in August and 16.57% in July.
However, the president of the Tanzania Bankers Association, Mr. Abdulmajid Nsekela, told the Citizen that there are commercial banks that offer borrowing rates as low as 10 percent.
“All I can say is that bank interest rates have continued to drop from 18% to 14% and there are banks that have already said they are offering up to 10%,” he said. -he declares.
He added that banks were working on interest rates after the central bank’s improvement measures which he called a stimulus package in agriculture. “The efforts to lower interest rates are continuous and sustainable,” he said.
Commenting on the debate, Equity Bank Executive Director Esther Kitoka said that “the initiatives taken now have not improved liquidity but rather improved the capital situation, which is good.”
However, she said, liquidity still resides in the big banks.
“This has resulted in a tight liquidity situation in this market, which creates stress for small and medium-sized banks,” she said.
She said the government must allow all actors to get a share of public funds, which will ultimately have a multiplier effect on the economy.
“Big banks are not the preferred choice of all customers. “
“We need to enable the growth of other banks which can also expand their network to reach more people and improve the quality of service across. GEPG (Government Electronic Payment Gateway) payments are routed through the same big banks, which limits the convenience of customers to make such payments and again distorts liquidity at a few banks, ”she said.
“The sector is not healthy due to the concentration of a few banks compared to Kenya where the banks are dispersed in terms of market share,” she said.
The Bank of Tanzania could not immediately comment on the debate.