Banks up rates to attract deposits

BoT headquarter
Banks have increased deposit rates for fixed deposits as part of efforts to attract more cash from customers, a survey by BusinessWeek has shown.

Commercial banks including Tanzania Postal Bank (TPB), National Microfinance Bank (NMB), First National Bank (FNB), Efatha, Standard Chartered and Azania Bancorp have increased deposit rates for up to 13 per cent, the highest in the last ten years, according to experts.

Most commercial banks offer a juicy rates for fixed deposits at a minimum amount of Sh100 million in a timeframe ranging from one month to three years. However, the TPB offers attractive interest rates on deposits at a minimum amount of 100,000/-.

One month rates at a minimum of between 100,000/- and 100m/- attract rates of between 5 and 6 per cent. While other banks offer about 11 per cent for three months deposits.

 For deposits with a time range of between one year and three years, banks offer between 8 and 13 per cent.

“The banking industry is very competitive and the number of banks has increased to almost 45. It is therefore very important for banks to have competitive rates so as to attract more customers,” said Noves Moses chief manager Corporate Affairs of Tanzania Postal Bank.

The deposit rates have doubled from an average of 3 per cent early last year for three months deposits to six per cent this year. While for one year deposit rates have increased from 5 per cent to an average of 12 per cent in the same period.

For a long time the interest rate spread, which is the difference between lending rate and deposit rates has been high. While offering insignificant deposit rates, banks have been charging exorbitant lending rates. Currently banks charge between 15 and 28 per cent lending rates.

The decrease of cash from circulation has largely been attributed to actions taken by the central bank (BoT) last October to mop up extra liquidity in circulation so as to contain the inflation which reached 19.7 per cent in December from a single digit six months earlier.

Some of the measures undertaken by BoT include increasing the bank rate as well as treasury securities rates to attract banks to buy treasury bills and bonds.

BoT also increased cash reserve requirements on government deposits from 20 per cent to 30 per cent. This forced banks from which the government had opened accounts to transfer billions of cash to the central bank.

“The markets are currently dry, there is less money in circulation, and the value for money has increased responding to the principles of “demand and Supply”. This is due to the move taken by the regulator [BoT] to control liquidity.

However, the unbalanced cash-economy in the market will equalise following the same principle of demand and supply,” Mr Moses said.
Source: The Citizen,, reported by Sturmius Mtweve , for Business Week pullout

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