Credit bureau to reduce interest rates, Barclays

Mr Maina
Barclays Bank Tanzania first opened shop in the country in 1925 and saw the country’s independence before being nationalised in 1967 and coming back in 2000 after liberalisation of the financial sector. Staff Writer ABDUEL ELINAZA interviewed the bank’s Managing Director KIHARA MAINA who has been given the task of seeing the bank attains its vision of leading in the country’s banking sector by 2015.

Q: How do you perceive the banking business in Tanzania?
A: The banking sector is very challenging right now but it is growing and that is a good sign. I think it is clear that over the last few years we have seen more and more entrants looking to come and that is a sign people want to participate in the opportunity that Tanzania has. That is a good thing because a strong financial sector is the key to economic growth. As you get more entrants the key thing that we have to ensure is we strengthen the sector by making sure new entrants are adding to the strength of the sector.

Competition is good ultimately because it ensures that competitively priced services are being offered. It helps to bring in innovation, expertise and experience from different parts of the world.  Ultimately the biggest beneficiaries are Tanzanians. Performance wise, because the sector is growing, there are certain challenges that still exist and a lot of infrastructure still has to be put in place to facilitate even faster growth. A good thing about the way in which these challenges are being dealt with is the dialogue going on between banks and their stakeholders to ensure banks facilitate economic growth as a whole.

Q: What type of these financial infrastructures…?
A: There are many, but for example…you know credit is very necessary to drive an economy. We want to make sure we (as banks) who are offering credit to the public feel comfortable we are not putting (client) money at risk when we are lending. To be able to do that we want to make sure that lending practices are as safe as possible. We need therefore infrastructure around safeguarding credit to be in place.

So for example we need to know the person we are lending to is so and so and to ensure the customer due diligence is as easy as possible—his or her financial details and history are obtained with little transaction cost. This helps ensure that the costs passed on to the clients through fees are not high. So what may seem like a little thing like putting in a National ID solves a lot of problems in processing credit. Other financial infrastructure will be things like putting up a credit reference bureau which will itself depend on the national ID to identify individuals correctly. We will need to ensure this information given to the credit bureaus is obtained from all institutions that offer credit.

For example utility companies who provide credit to a company or individual who is not good at paying will need to feed that information to the bureau. Right now we heavily rely on the cash economy in Tanzania. We want to reduce the reliance on cash for various reasons. The central bank wants to make sure that it can rely on its monetary policies being well transmitted through the financial system. Therefore we need to ensure that most cash moves through the banking system. We want to make sure that we reduce the cost of operating branches because we move long distances transporting cash.

Therefore the ideal situation is to put in centres that allow cash to be moved over shorter distances while we are in transition to a less cash intensive economy. All this infrastructure requires investment.  We also have to think about how we interface with the international economy. So we are putting in systems that connect the region to facilitate trade. You have probably heard about the real time settlement system that allows us (banks) to move money around East Africa quickly.

Q: Talking about credit reference bureau that BoT says may start anytime this month, do you think the presence of the bureau will help lower lending costs?
A: Yes, ultimately it will. Right now if we want to lend to an individual we have to do a lot to search for the necessary information. This costs the bank a lot of money. Every other bank will do the same. However, if banks were to share negative information with the bureau when someone defaults we can significantly reduce these search costs. This benefit passes on to borrowers through lower credit interest rates.

Additionally we are going to see lower default rates because people want to make sure that their credit history is good due to the fact that if they default in one bank they could end up being locked out of the credit market—for example six years. People will behave better with respect to credit. Lower default rates will lead to banks charging lower risk premiums and therefore lower credit interest rates. Although it would not happen overnight ultimately the rates will go down.

Q: Since the recently world economic crisis, banks’ non performing loans (NPLs) have gone high. Do you think the situation will soon change to better levels?
A: Well, NPLs in this market are higher than others in the region. The latest statistics are showing that they are around 8.7 per cent to gross loans. This compares to 4.5% announced recently in Kenya and 3-5% around the region.  Quite correctly there is a focus from the financial sector to see how we can bring down these NPLs.

This will require understanding of what between the business cycle, economic issues and operational issues is contributing to the high rate. We have to do a lot of work to distinguish between good and bad borrowers. Depending on what strategy a bank is following there will need to be an understanding of the impact on NPLs. So you will see that some of the banks which are reporting huge NPLs are cleaning up their balance sheet to make sure that they go forward with a stronger position. We will need banks with strong balance sheets to ensure the economy also moves forward.

Q: What is the NPLs situation to Barclays Bank?
A: Well Barclays underwent a very significant expansion from about 2007 to 2009. It included both geographical and loan book expansions. As a result we saw some significant growth especially in our loan book and admittedly there were some challenges. We spent 2009 and 2010 pretty much on cleaning up our books. We have got a robust team that is looking at recoveries of the loans that went bad. We have changed our products and services so that they are more robust. Going forward since then the quality of the loan books has been very encouraging.  We have done our clean up and we are looking forward to our quality products improving our loan book quality.

Q: You made loss in this year’s second quarter, what are the profit expectations at the end of the year?  
A: If you look at our first quarter results we made a profit, but a loss in the second quarter to reflect the changes we were doing to strengthen the business in that particular quarter. We are expecting to make a profit at the end of the year. We don’t want to jinx it but as I have said we expect to make a profit.

Q: Banks want to expand geographically but Barclays closed some branches in the first quarter, is this not going against your own vision?
A: No. It is perfectly aligned to our vision. We (Barclays) run a retail and commercial bank in Tanzania. We have presence on the ground that allows us to bring all the strengths of the Barclays Group to bear in this market. This includes advisory work for corporate or sovereign clients, whether it is to bring in expertise to arrange debt programmes or any other kind of advisory work we can do. We have other capabilities in the Group that we can also bring here and we are always looking for the right opportunities to do so.

BBT (Barclays Tanzania) itself has got a strategy that is consistent with bringing in the Groups expertise to bear within the Tanzania economy.  One of the things that we had done earlier was to expand across the country. We looked at the expansion we did and asked ourselves whether we were in the position that we wanted to be and whether it was the right one in terms of services we wanted to offer? After doing the re-evaluation we thought we could strengthen and consolidate our position further and serve our customers better by trimming our network.  We are here to stay and will maintain our focus on this market though we are (now) a bit more selective.

Q: What are your expansion strategies now?
A: Actually we are expanding our customer base. As you can see expansion does not necessarily mean geographical expansion, it can be about increasing customers. There are some banks in this town that only have a couple of branches but they operate throughout the country. There are places where we currently serve customers but we have no branches there. The good thing about technological advancement is that it allows you to expand your reach without necessarily having a physical presence on the ground.
Source: The Daily News, http://dailynews.co.tz
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