The Bank of Tanzania has instructed banks and other lending financial entities to take immediate action to curb escalating Non Performing Loans (NPL) and to increase dwindling credit.
Over the last year, credit has dropped significantly, banks are simply not lending, while on the other hand, the little that they are borrowing is not been paid back, Non-Performing Loans (NPL) are up 11 percent, double the regulatory requirement, a bad forecast for the economy.
“…the banking sector has experienced a general slow-down in credit growth and increasing non performing loans. The situation is not healthy, not only for the banking sector but also for the economy of the country as a whole,” read the BoT statement in part.
“To contain the situation, banks and financial institutions are directed to develop and implement specific strategies aimed at improving credit granting process and reversing NPL trends.”
“Further, every bank and financial institution is required to ensure that no new NPLs are generated by failure to follow robust credit granting and management process.”
The BoT went a step further and provided the banks and financial institutions ‘regulatory measures and reliefs intended to provide them more space to advance more credit …while at the same time prudently managing risks emanating from lending activities.’
However, BoT warned that should the strict conditions provided in each category of the relief package be violated, then stiff regulatory penalties and sanctions shall be imposed.
Loan defaulters have got some leeway in the guidelines with BoT acknowledging chances that they defaulted due to no fault of their own rather bad economic trends.
For prospective borrowers, however, things are a bit difficult, as they are now required to ‘pass through’ stringent vetting processes before they can get loans from the banks operating in the country.
ALSO SEE: https://www.exchange.co.tz/a-healthy-banking-sector/
The BoT’s list of Dos and Don’ts
- Development of strategies to contain NPLs
- Develop strategic plans to reduce NPLs
- Establish a permanent recovery function
- Segregation of duties in credit department
- Clarify outsourcing collection specialists
- Involve top management in high risk cases
- Quarterly reports on lending and NPLs
- Establish key performance indicators for recovery
- Re-assess operational capabilities particularly credit processes and credit risk
- Strict use of credit reference systems
- Restructuring Credit Accommodation
Allow restructuring of loans up to four time (waived regulation 7(5) Management of Risks regulations) up to Dec 31st 2020 for:
- Borrowers with good track record
- Borrowers affected by economic variables
- Waiver of Interest and Charges
Allow roll over, renewal and extension of overdraft facilities without consideration of interest and charges outstanding (Waived Regulation 7(2))
- Upgrading of Credit Accommodation
Allow upgrade of terms of loans after two consecutive payments Waived Regulation 7(4)
- Write off Credit Accommodation
Asses NPLs in loss category and write off credit accommodations that have remained in the loss category for more than four consecutive quarters as off 2017