CONFUSION REIGNS OVER GOVT DEPOSITS PLAN

The Government`s recent announcement that it would close all accounts it holds in commercial banks has sent a wave of panic and disbelief in business generally but more especially in the banking sector.

Some authorities and experts in business contacted for comment on the Government`s plan said the issue would have a huge impact on the national economy and pleaded for more official elaboration on the rationale behind it.

Comments sought from a number of commercial banks in Dar es Salaam in the last few days show that if the government indeed withdraws its deposits as announced, interest rates could rise dramatically and some banks would experience rare shocks in their financial health.

Standard Chartered Bank Chief Executive Officer Hemen Shah expressed the view that banks with fat Government accounts could be in great trouble if the Government makes good its threat to move all its monies and Treasury bills to the central bank ? the Bank of Tanzania.

He said: `That will in turn affect profitability and rankings in the banking industry unless new products are thrown into the market quickly enough to create the much-needed deposit base to address increased demand for assets. In the event this leads to a reduced demand for Treasury bills, it could also reduce interest rates, benefiting all borrowers.`

The StanChart chief pointed out that the advantages of depositing Government funds in commercial banks included getting handsome returns on the deposits, `depending on the type of bank the funds are deposited in`.

The same funds could then be re-invested into the economy through lending to various sectors small and medium enterprises and microfinance as well as individuals and other corporate bodies.

Shah explained further that, if the deposits earned too little or no interest for the Government and commercial banks re-invested the deposits into Treasury bills and not the productive sector of the economy, the Government`s move should be applauded.

`The Government`s decision stands to bring about stabilised competition in the banking industry, particularly on interest rates. Banks both local and international will have a level playing field on which to compete, thereby bringing about healthy competition within the banking industry,` he added.

A composed Shah said his bank would not be affected by the Government`s decision `because our deposits depend largely from individuals, companies and pension funds, with Government funds accounting for just a small chunk`.

Senior officials at Exim Bank diplomatically declined to give their stand, asking that The Guardian give them time to digest the matter before stating what they thought about the matter.

They would not even say whether they too had Government deposits.

Meanwhile, a senior official with the United Bank of Africa (UAB) who requested anonymity was emphatic that the Government?s decision would throw banks having huge Government deposits off gear.

But it will all depend on what the central bank will ultimately be doing with the Government deposits moved from commercial banks, she quickly added.

When contacted to comment on the government`s decision, CRDB Director of Marketing and Research Tully Mwambapa said they were awaiting official communication on the matter from the Government `because we have already furnished it with our own recommendations while also seeking clarification`.

A noncommittal Mwambapa only explained that it would be absurd to comment while the Government was yet to respond to their request and recommendations, adding: `It would be worthwhile waiting for whatever the Government says in connection with our request.`

`Our concern has been submitted to the Vice President?s Office and we might have something substantive to say. If you need any further elaboration, I suggest you contact the Government itself,` she stated.

Treasury permanent secretary Gray Mgonja was recently quoted as saying the Government was seriously planning to transfer its deposits from commercial banks to the central bank.

He said the move was meant to reduce the heavy financial burden on the government?s shoulders but fell short of stating exactly when it would be implemented and the impact the Government hope that would have on the national economy.

Mgonja said at the sidelines of the just-ended budget sessions of the National Assembly in Dodoma that the Government has been incurring heavy losses maintaining deposits in commercial banks.

He explained that some of the banks were using `returns` on the same deposits to buy Treasury bills on which, according to him, the Government repaid a high interest.

Mgonja suggested further that the deposits lined up for transfer came to no more than one-sixth of the monies the Government has deposited in commercial banks.

However, again, this has not made the scenario any clearer for many members of the business community and the larger public.

SOURCE: Guardian