Tanzania: Local banks pass BoT stress test

THE Bank of Tanzania (BoT) has said that all commercial banks passed the stress tests conducted between mid last year and this March.

The tests showed that the banking system was resilient to adverse changes in interest and exchange rate as well credit quality.

“The tests indicated that liquidity levels were sufficient to cushion the system against extreme liquidity risk,” BoT said in June’s Monetary Statement Policy report issued recently.

According to the central bank, as at the end of March, most banks were well capitalized with liquidity levels above regulatory requirements. The ratio of core capital to total risk weighted assets and off-balance sheet exposure was at 18.8 per cent compared with a minimum regulatory requirement of 10 per cent.

However, the BoT said that the quality of assets of the banking system deteriorated as reflected by the ratio of non-performing loans (NPL) to total capital, which increased to 24.6 per cent from 15.5 per cent, recorded at the end of March last year.

The ratio of NPL to total loans also increased to 9.5 per cent at the end of March 2011 from 7 per cent recorded at the end of March last year, mainly due to the delayed effect of the global financial crisis.

BoT said it has tightened further its oversight over credit administration in banks, in order to mitigate further deterioration in the quality of banks’ portfolios. The global financial crisis hit most commercial banks in the country to impact negatively on their profitability level.

The overall bank sector profits dropped to 192bn/- in 2010 compared to 217bn/- of 2009. This was the result of uncertainty of debtors’ ability to settle their obligation, thus compelling banks to put aside billions of shillings to cushion the situation.

The non-performed loans also worry the International Monetary Fund, which has advised the banking sector to be vigilant on the quality of credits offered as the trend was worse mid last year.

Loans and advances reached 5.38trn/- last year which is 56 per cent of total industry deposits. Currently, there are 43 banks which have so far managed to serve a mere ten per cent of the 40-plus population.