Banking sector is sound, stable - BoT
The sector continued to record steady
growth with total assets growing by 14.6 per cent to 26.98tri/- at the
end of April 2016, compared to 23.55tri/- recorded at the end of April,
last year.
As at the end of March 2016, the ratio
of core capital to total risk weighed assets and off-balance sheet
exposure was 18 per cent compared with the minimum legal requirement of
10 per cent.
According to Bank of Tanzania (BoT)
Monetary Policy Statement for the period ended June 2016 the ratio of
liquid assets to demand liabilities stood at 36.6 per cent, which was
above the minimum regulatory limit of 20 per cent. Similarly, the stock
of gross foreign assets of banks was 915.7 million US dollars recorded
at the end of April 2016.
The quality of the banking sector’s
assets slightly deteriorated as reflected by the ratio of non-performing
loans (NPL) to gross loans, which increased to 8.3 per cent from 6.7
per cent recorded at the end of March, last year.
Most banks maintained NPL levels below 5
per cent and those with levels above this have been required to bring
NPLs to below 5 per cent. Deposits continued to be the main funding
source in the banking sector assets, accounting for 86.1 per cent of
total liabilities.
The other major source of funding was
shareholders’ equity. During July 2015 to April 2016, overall liquidity
condition among banks was generally satisfactory, with occasional
periods of liquidity tightness.
The bank had to address the situation by
granting reverse repos, while some banks increased their access to
Lombard and intraday facilities to square their liquidity position.
Reflecting liquidity condition, interest
rate at which commercial banks lend cash to each other overnight (the
overnight interbank cash market (IBCM) interest rate) declined from a
peak of 29.98 per cent in July 2015, owing to moderate fiscal outlays
and tight monetary policy stance pursued by the bank, to 6.27 per cent
in September 2015, the period when liquidity hovered above the target
band due to sizable government outlays.
The IBCM rate rose in October 2015
following increased demand for cash, before it subsequently eased and
stabilised beginning January 2016. The observed stability in IBCM rate
is also associated with the increased monetary policy focus on
stabilisation of banks’ free reserves, as a step in the direction of
improving the monetary policy framework.
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