Mtwara — Challenges which commercial banks in Tanzania had experienced in the last two years are finally over, according to the Bank of Tanzania (BoT).
During that period, banks traversed through a bumpy road that stemmed from squeezed liquidity as commercial banks grappled with illiquid clients. This resulted in reduced lending to the private sector.
With tight liquidity in the economy, borrowers failed to honor their obligations, resulting in an accumulation of high levels of nonperforming loans (NPLs).
Until the end of December 2016, the NPLs-to-total-gross loans ratio had reached an average of 9.5 per cent, having risen from an average of 6.4 per cent in 2015. This was against the generally accepted threshold of five per cent.
That notwithstanding, however, the banking sub-sector’s stability – measured by all factors within the financial soundness indicators (FSIs) – were positive, Mr Eliamringi Mandari, a manager at the central bank’s directorate of banking supervision, said in Mtwara on Wednesday.
“We measured the points through capital adequacy, asset quality, earnings, liquidity and sensitivity to market risk,” he said.
BoT data shows that the capital adequacy ratio (CAR) had improved by 1.15 per cent last year – reaching 18.92 per cent at the end of 2017, having risen from 17.77 per cent in 2016.
Mr Mandari also said that the capital adequacy ratio last year was above the industry benchmark of ten per cent – plus 2.5 per cent of buffer ratio.
Banks’ total capital stood at Sh4.73 trillion last year, up from Sh4.28 trillion in 2016.
Measured by liquidity ratio, the stability climbed to 40.13 per cent, compared with 35.8 per cent in 2016.
Regarding assets, their total value reached Sh29.97 trillion in 2017, rising from Sh27.92 trillion in 2016. Total deposits also increased, reaching Sh21.23 trillion in 2017, up from Sh20.15 trillion in 2016.
With the spectre of rising NPLs, however, returns on equity dropped to 6.88 per cent from the 8.88 per cent recorded in 2016.
Also, returns on assets dipped to 1.61 per cent last year, from 2.08 per cent in year-2016.
By Rosemary Mirondo