CREDIT to private sector declined in October last year due rise in risk premium associated with increase in non-performing loans and banks’ preference to low risk government securities.
Bank of Tanzania (BoT) monthly economic review for November last year states that stock of outstanding credit to private sector decreased by 254.6bn/-in the year ending October to 16.39tri/- compared with a contraction of 266.6bn/- in the preceding month.
Despite the general decline in annual growth of credit to private sector, credit to fishing; hotel and restaurant; manufacturing; hunting; building and construction activities improved. Credit to trade and personal activities remained strong accounting for 20.9 percent and 19.4 percent, respectively.
In the meantime, the annual growth of domestic credit contracted by 7.9 percent in October, nearly the same rate as in the preceding month but a turnaround from a growth rate of 7.9 percent in the year to October 2016.
The contraction was mainly driven by shrinkage in net credit to the central government. According to the report, net credit to the government by the banking system contracted by 30.1 percent compared to an increase of 0.3 percent in October 2016.
This was largely on account of a decline in the Bank of Tanzania’s advances to the government, following a strong buildup of government deposits at the Bank. By contrast, central government borrowing from banks increased, reflected in the holdings of government securities sold for fiscal operations.
Net foreign assets (NFA) of the banking system grew by 40 per cent in the month under review compared to the contraction of 10.2 per cent in the corresponding period thus offsetting the impact of the slow growth of domestic credit on money supply.
The increase in foreign exchange holdings by the Bank of Tanzania through purchases from the government and interbank foreign exchange market was the factor behind the growth of NFA.
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