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| BoT HQ in Dar |
The impact of tight liquidity introduced by the Bank of Tanzania (BoT)
about a year ago to tame inflation and curb the shilling's free fall has led to
low level of money in circulation which has increased competition for deposits.
The competition for deposits has intensified because the 48 commercial
banks in business are fighting for the local market which has seen a
meagre 20 per cent of the bankable
population covered.
The Bank of Tanzania (BoT) measures were aimed at arresting the
situation by reducing the core capital
of foreign exchange dealers from 20 to 10 per cent.
The central bank also increased cash reserve requirements on government
deposits from 20 to 30 per cent and
upped discount rate by 200 basis points to 9.58 per cent.
Though the measures
managed to bring down and stabilize the shilling from 1,860/- to between
1,560/- and 1,600/- per US dollar as well as rescue the macroeconomics fundamentals, the move failed
to lower inflation rate substantially which has kept on sticking to double
digit at 18.7 per cent in April.
"Our policy is not to target the exchange rate but to stabilise
the shilling by maintaining circulation of money," BoT Director of
Economic Research and Policy, Dr Joe Massawe, said. He added: "We have to
strike a balance between intervention and interest rates on Treasury Bills to avoid distortions in the market."
This resulted into a number of challenges that spurred
the market such as liquidity scarce that pushed up interest rates on
deposits, which later increased costs of lending to impact negatively on
production output. For instance, deposits rates at the beginning of this year
were around five per cent, which could not match with Treasury Bills yield
rates of between 15 and 18 per cent. A return on equities at the Dar es Salaam
Stock Exchange (DSE) of over 10 per cent was also another factor.
To attract more cash flows, banks uplifted the deposits rates while some
even went a mile ahead and introduced promotions that offered not only prizes
but also high interest rates. The first to embark on upping deposit levels was
the National Microfinance Bank (NMB) which has offered up to 10 per cent
interest rates on its bonus and junior accounts.
The two account holders also stand a chance to win building materials,
school fees, school bags and some other awards in monthly draws for the next
three months of the promotion. NMB is the most profitable bank in the country and
the second in deposits level. The bank controls between 30 and 40 per cent of
total customers.
On other hand, competition in the local banking sector intensified in
the recent months after the coming of
new entrants, FNB of South Africa and Equity Bank of Kenya. CBA Bank
followed suit almost the same week and launched
a promotion aimed at increasing its deposit levels to push up its
lending capacity.
The three-month promotion dubbed "Deposit and Win with Your CBA
Account" targets new and existing customers from both personal and
corporate categories. The promotion targets to increase its liquidity and grab
new customers. CBA Head of Personal Banking, Mr William Mungai, said the bank
was in a dire need for deposits for both mortgage and personal loans.
"This is just a strategy to increase deposits and at the same time
reward our customers in the next three months up to September", he said.
Ecobank also joined the race and launched of a mega promotion to encourage
people to open accounts where the ultimate prize would be a car worth 65m/-.
The bank, which opened shop in Dar es salaam in 2010, said it has grown
the balance sheet with 90bn/- in assets in the last two years and the current
total deposits standing at 47bn/-.
Ecobank Head of Treasury, Mr Erik Mushi said that the central bank measures to
tighten money supply in the economy have had an immediate impact of the
liquidity level.
The liquidity squeeze was also a blessing to investors and depositors
because, for the first time in money markets history since the liberalization
of the financial industry,they have won a wider option of where to put their
money due to lucrative interest rates offered at the moment.
"Investors have a wide option
where to invest their money as returns rates are very good", said
Mr Moremi Marwa, CEO of Tanzania Securities. He added that the banks' deposit
rates are at all time high at 8.3 per cent on average, Treasury Bills
rates range between 15 and 18 per cent
and equity yields are trading above 10 per cent.
However, the CEO of the stock brokerage firm said that
practically,individuals don't benefit
from the positive trend in the market
because they end up, at times, getting
around 5 per cent. "Those with big money like pension funds and fund
managers are the ones who benefit most, with some negotiating a better deal of up to 18 per
cent," he said.
CRDB Bank Managing Director, Dr Charles Kimei, told the 'Business Standard'
recently that commercial banks had limited options in mobilising deposits.
Source: The Daily News,http://www.dailynews.co.tz, reported by Abduel Elinaza
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