There’s enough liquidity: BoT chief

Prof. Benno Ndulu-BoT Governor

•      In a speech at a bankers’ meeting here, Prof Ndulu said there was a vast amount of liquidity (cash) outside the banking system that was enough to enable banks to fulfil their role of “greasing” the growth of the private sector, which is the engine of the Tanzanian economy.

Arusha. Bank of Tanzania governor Benno Ndulu yesterday advised bankers to work harder and attract deposits from customers and potential customers instead of depending excessively on public sector deposits.

In a speech at a bankers’ meeting here, Prof Ndulu said there was a vast amount of liquidity (cash) outside the banking system that was enough to enable banks to fulfil their role of “greasing” the growth of the private sector, which is the engine of the Tanzanian economy.

“Six out of every ten shillings held in cash is outside the banking system. Deposit drive would tap into that resource base for lending to those in need of credit and reduce the current excessive dependence on public sector deposits,” Prof Ndulu said yesterday.

He revealed that Sh700 billion is still held by government agencies and institutions as deposits in the commercial banking system, accounting for three per cent of total deposits. About Sh500 billion, which had been deposited by public institutions in the long-term basis was removed from the banking system between January and May this year by the order of President John Magufuli, who also said that only the money needed for recurrent expenditure was to remain in the banking system.

Prof Ndulu’s advice to banks yesterday comes at a period when these institutions have reduced lending considerably, citing a liquidity crunch. Figures show that in the year ending September 2016, banks issued slightly more than a half of what they had issued to the private sector in the year that ended in September 2015.

Between October 2015 and September 2016 banks issued Sh1.7 trillion to the private sector as compared to Sh2.9 trillion the dished to the private sector between October 2014 and September 2015.

But it was the manufacturing sector that suffered much as the credit growth rate declined to -7.9 per cent by September, from 20.7 in the same period last year.

Prof Ndulu told bankers to also strive to attract long terms deposits from customers savings to “support lengthening maturity of loans to investors and help to reduce the burden of debt servicing associated with maturity mismatch between short term deposits and investment credit.”

By September this year there was a total of Sh22.2 trillion in the economy (including foreign currency deposits in banks), according to the Monthly Economic Review report of the BoT.

In the 12 months to September 2016, only about Sh913 billion wa injected into the economy (an annual growth of 4.3 per cent) as compared to Sh3 trillion that was injected into the economy in the 12 months to September 2015 (an annual growth of 16.5 per cent), the BoT report shows.

Harnessing Tanzania’s Geographical Advantage: The Role of the Financial Sector was the theme of yesterday’s meeting, which is held every two years.