Bank deposits up amid liquidity woes in markets

Scarcity of liquidity in the financial market, coupled with a widening of the avenues for portfolio investment and the coming of new commercial banks are the driving factors behind an increase in deposit rates during the past few months, experts say.

This means that people who deposited their money with commercial banks during the past 14 months reaped some better interest earnings than those they earned before.

According to CRDB Bank’s director of marketing, research and customer services, Ms Tully Esther Mwambapa, the scarcity of liquidity in the financial market was experienced following the tight monetary policy instituted by the Bank of Tanzania (BoT) to curb high inflation and the continuous depreciation of the local currency 14 months ago.

As a result, the BoT said in its December 2012 Monthly Economic Review that annual growth of money in the financial system dropped to 11.1 per cent in November 2012 compared to 21.1 per cent recorded in the corresponding period in 2011, reflecting the impact of the tight monetary policy stance adopted by the bank.

“Thus, the coming of new players made things even worse, forcing commercial banks to start competing for depositors’ money…..It is that competition that pushed up depositing interest rates though terms and conditions attached to these rates make them differ,” says Ms Mwambapa.

She said as a result, her bank currently offers deposits’ interest rate of up to 6.5 per cent for less than Sh1 billion that stays in the bank for three months, up from a previous rate of 1.5 per cent in average.

Consequently, for the six and nine months, the rates have also gone up to 7.5 per cent and 7.75 per cent from an average of 2.5 per cent and 3.5per cent respectively.

For deposits that stay in the bank for 12 and 24 months, rates went up to 8.5 per cent and 9 per cent respectively from an average of 3.5 per cent for a less than Sh1 billion deposit. Deposits above Sh1 billion are subjected to a rate to be offered by the dealing room, which, according to Ms Mwambapa, mostly offers higher interest rates.

The Tanzania Securities Chief Executive Officer, Mr Moremi Marwa, was recently quoted as saying that investors currently have wider investment options that range from deposits that fetch yields of 8 per cent on average, T-bills between 15 and 18 per cent and equity yields which fetch above 10 per cent.

“This is good for investors as banks and equities are competing for funds….Those with huge funds are the ones who benefit most from the said banks’ interest rates including pension funds and fund managers,” Mr Marwa said.
Last year, a number of banks ran promotional draws geared at attracting deposits while new entrants such as First National Bank of South Africa came up with competitive deposit interest rates of up to 12 per cent. The increases in return reduced the spreading between lending and deposit interest rates.

According to BoT, overall time deposit rate increased to 8.56 per cent in June 2012 from 6.06 per cent recorded in June 2011, while lending rates for short-term loans of up to one year stands to an average rate of 13.92 per cent.

“As a result, the spread between 12-months deposit rate and one-year lending rate narrowed to 2.82 per cent from 6.82 per cent recorded in June 2011,” the last July Monthly Economic Review report said.

On other hand, World Bank report published in 2012 shows that the deposit interest rate in the country was last reported at 6.57 per cent in 2010.
Source: The Citizen,, reported from Dar es Salaam
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