Lending to private sector improves

Most recent official data shows that commercial banks` credit to the private sector has remained robust, recording an annual growth rate of 38.8 per cent.

The Bank of Tanzania (BoT) latest Quarterly Economic Bulletin indicates private sector credit to total deposits also increased to 51 per cent, reflecting slight improvement in intermediation by banks.

The continued improved performance in private sector credit reflects, in part, declining credit risks due to continuing reforms, improvement in business environment and competition in the banking sector, increased public awareness on facilities offered by the banks for small and medium sized enterprises, improved microfinance services, as well as the introduction of special products for estate developments, it says.

In terms of credit concentrations, activities that benefited mostly were trade, manufacturing, agriculture particularly cash crop purchases, transport and communication, electricity, building and construction.

Interest rates on deposits and loans continued to have weak response from the treasury bills market.

The weak link is largely attributed to the structure of the financial market, existing structural bottlenecks, legal and regulatory rigidities, which hinders the smooth operation of the financial system and hence distorts the competitive determination of interest rates in the market, thus feeble pricing of various financial assets in the economy.

Overall time deposit rate stabilized at 7.69 per cent, while interest rates on 12-months time deposits rates dropped to 8.88 per cent from 9.17 percent.

Subsequent to ongoing improvement in business environment, declining credit risks was due to continuing reforms and competition in the banking sector.

Performance in the treasury bills market remained satisfactory during the quarter ending June 2007, with total demand during the quarter closing at 1,572.7bn/- against total supply of 735.0bn/-.

This level compares with total demand of 1, 149.5bn/- against supply of 730.0bn/- recorded during the preceding quarter.

The sizeable increase in demand was largely on account of increased liquidity in the economy, mainly emanating from fiscal operations, and in part due to BoT?s purchase of foreign exchange in the inter-bank foreign exchange market.

In an effort to control the level of liquidity in the economy to the targeted path, the Bank of Tanzania conducted repurchase agreements (repo) worth 621.0bn/- to supplement government securities in curbing liquidity pressure in the commercial banks.

The volume of transactions at the Inter-bank Foreign Exchange Market recorded a noticeable increase to USD 303.8m. The rise in the volume traded was on account of the increase in the foreign exchange inflows from NGO?s, air ticketing and education services.

BoT purchased USD 136.0m, while commercial banks and non-bank financial institutions sold USD 118.3m and USD 17.7m respectively.

SOURCE: Guardian