East African Business Week

DAR ES SALAAM, TANZANIA -Tanzania's commercial banks have passed the stress tests conducted between June last year and March 2011, by the Bank of Tanzania (BoT).
 The tests carried by the Central Bank during the period under review, showed that the banking system was resilient to adverse changes in interest rates, exchange rate and credit quality.
 "Liquidity levels were sufficient to cushion the system against extreme liquidity risk," BoT said in June's Monetary Statement Policy report issued recently.
 According to the BoT, as at the end of March, most banks were well capitalized with liquidity levels above regulatory requirements.
 The ratio of core capital to total risk weighted assets and off-balance sheet exposure was at 18.8% compared with a minimum regulatory requirement of 10%.
 However, BoT said, the quality of assets of the banking system deteriorated as reflected by the ratio of non-performing loans (NPL) to total capital, which increased to 24.6% from 15.5%, recorded at the end of March 2010.  The ratio of NPL to total loans also increased to 9.5% at the end of March 2011 from 7% recorded at the end of March 2010, mainly due to the delayed effect of the global financial crisis.
 BoT said it has tightened "further its oversight over credit administration in banks, in order to mitigate further deterioration in the quality of banks' portfolios."  The global financial crisis hit most commercial banks in the country to impact negatively on their profitability level. The overall bank sector profits dropped to 192b/-($120m) in 2010 compared to 217b/-($ 135,625m) of 2009.
 This situation was caused by the uncertainty of debtors' ability to settle their obligation, thus compelling banks to put aside billions of shillings to cushion the situation.
 The non-performed loans also worry the International Monetary Fund, which advises the bank sector to be vigilant on the quality of credits offered as mid last year the trend was worse.  In last year loans and advances reached 5.38trn/- (33.6b) which are 56% of total industry deposits. The banking sector so far managed to bank 10% of the estimated 40 population. the country has 43 banks.