Equity Analysis /

Tanzania banks allowed to restructure loans, interest rates reduced – positive

  • Banks are now allowed to restructure loans, but the terms are yet to be made clear.

  • Mobile money transaction limits expanded, but fees have been retained and banks given discretion on charges.

  • Discount rate reduced from 7% to 5% to boost liquidity in the banking sector.

Tanzania banks allowed to restructure loans, interest rates reduced – positive
Faith Mwangi
Faith Mwangi

Equity Research Analyst, Financials (East Africa)

Tellimer Research
14 May 2020
Published byTellimer Research

The Bank of Tanzania, in its recently held monetary policy committee meeting, finally followed its regional counterparts and put forth measures to deal with the economic impact of Covid-19. We see the new measures as positive and believe they will support the banking sector. 

So far, Tanzania has 509 cases, 183 recoveries and 21 deaths. Though the numbers are lower than Kenya (737 Covid-19 cases), the acceleration has been much faster than in other East African countries, with little regulatory action. We had highlighted this as a concern in our previous research. 

Even with these new measures, we retain our negative outlook on Tanzania as the country is yet to implement any significant movement restrictions and we believe the number of Covid-19 cases will continue to rise rapidly. 

The key regulatory changes made by the Bank of Tanzania include:

  1. Similar to Kenya, Bank of Tanzania has lowered the statutory minimum reserve ratio to 6% from 7%, to boost liquidity in the Tanzania market. Of our two banks under coverage, the additional liquidity room will be of most benefit to CRDB as it has lower liquidity.
  2. The discount rate was cut to 5% from 7%, to enable lower lending rates in the economy. However, we believe private sector credit growth will remain anaemic as businesses are disrupted by Covid-19. 
  3. Banks have been allowed to restructure loans. Unlike Kenya, where the loan extension terms were specific (1 year), Bank of Tanzania has retained oversight and the terms of restructuring permitted are unclear. We are concerned about this, given that the regulator relaxed NPL reporting standards in 2018, which reduced clarity on loan asset quality. It is likely that the NPL numbers that will be reported for Q2 20 will be difficult to assess unless Bank of Tanzania offers periodic updates on the restructuring process. 
  4. Haircuts on Government securities were reduced to 5% from 10% on treasury bills and to 20% from 40% on treasury bonds. Essentially, this means banks will be able to borrow from Bank of Tanzania with far less collateral. However, we believe that borrowing from the central bank should not be an immediate necessity, as long as market liquidity is well supported. 
  5. Daily transaction limits for mobile money payments have been increased to TZS5mn from TZS3mn, while daily balances for mobile money have been increased to TZS10mn from TZS5mn. Unlike in Kenya, where charges on mobile money transactions were lowered, Tanzania has left this to the discretion of the banks.