BoT tells banks to lower credit risk

REDUCTION in credit risk will enable banks and other financial institutions lend more to the private sector and reduce reliance on the safety of public sector credit market, the Bank of Tanzania (BoT) Governor Prof Benno Ndulu has said.

Speaking at the 18th Financial Institutions conference concluded in Arusha at the weekend, Prof Ndulu said the role of the financial sector is largely to facilitate the private sector to harness the country’s comparative and competitive advantages.

“Coupled with better credit information of prospective borrowers, cost of credit can be reduced and credit be made affordable,” he said. Financial institutions are fundamental instruments in providing credit to support development of industry and agriculture which form export base of manufactures to the region as well cross-border trade.

“Financial institutions have capacity to extend credit to both private and public sectors in order to facilitate transport and logistics infrastructure, among others, which is critical for enabling the country serve as a gateway to the six neighbouring landlocked countries,” he said.

He said the institutions’ facilitative role is in terms of providing finances while the government provide overall vision, translating such vision into short and medium term plans, policy and regulatory frameworks and investing in supportive infrastructure to crowd in private investment.

“Financial institutions are challenged to do this by growing access to affordable credit for the wide range of investment involved in expanding the logistical capacity for trade and facilitating supply chains for trade as well as gate-way services for landlocked countries,” he said.

He said the institutions can do so by tapping into the vast amount of cash liquidity outside the banking system. Prof Ndulu added, with new technological platforms like mobile money, banks and other financial institutions can widen the reach of their services cost-effectively and significantly increase savings mobilization.

Using similar platforms, equity markets can also extend the reach of their canvass to small savers.

More importantly financial institutions need to work towards securing longer term savings to support lengthening maturity of loans to investors and help to reduce the burden of debt servicing associated with maturity mismatch between short term deposits and investment credit. Banks can also organise finance through syndicated loans for large scale financing of investments.

This has been done before for successful private sector investment like Kagera Sugar, for public utility entities like Tanesco and for funding public investment in infrastructure