Dar es Salaam. The chairman of the Tanzania Bankers Association, Dr Charles Kimei, has moved to calm the banking sector following a government directive that will see over Sh550 billion in deposits withdrawn from commercial banks.
The government has directed ministries, state agencies and local authorities to immediately shift their operational accounts from commercial banks to the Bank of Tanzania (BoT) in a new move meant to instil financial discipline and maximise returns on public funds. The order was due to take effect yesterday.
It was feared that the government's decision to pull over Sh550 billion out of commercial banks would adversely affect liquidity in the fragile market and make borrowing expensive. The move, which came to light last week, drew mixed reaction in the academia and also got defence from top Treasury and central bank officials.
Yesterday, Dr Kimei, who is also CRDB Bank managing director, added his voice on the matter, saying centralising the government entities' operational accounts would not affect the banking transaction system as they had different sources of deposits.
Deposits are the major source of funding in the banking sector and accounted for 72.4 per cent of total assets as at the end September 2015, according to data from the BoT. The banking deposits increased by 6.7 per cent to Sh19.08 trillion in the six months ending September 2015.
Dr Kimei said the decision will help the government to monitor its entities' expenditure and act as a tool for liquidity management, hence reduce the level of Treasury bills issued for mopping out money in circulation.
"There is nothing to worry about this decision. The operational accounts will be transferred to the BoT but commercial banks will still remain with the working balances and manage the transactions of these government entities," said Dr Kimei adding that they were not surprised or shocked by the move.
The CRDB Bank boss said the information had created panic in the banking industry, but he gave the assurance that there was nothing strange in the directive as Uganda and Rwanda are also implementing a similar policy.
He said the banks will focus on doing business with the private sector and expressed hope that even the lending rates will go down on the basis of competition.
He said the central bank would also have sufficient money to loan the government at lower interest rates than those offered by the commercial banks and influence a downward movement of the interest rates in the market.
BoT governor Beno Ndulu separately expounded on the matter, saying he was optimistic. He said the central bank would not assume the retail role of the affected banks, which will be expected to continue providing transactions below the BoT threshold.
He told the State-owned Daily News on Sunday that the government initially suffered from borrowing its own funds deposited with the commercial financial institutions.
He noted that the banks would use the same government facility to trade with government for huge profits while the government sometimes did not benefit or share in the profits.
Tanzania has over 50 banks but over 70 per cent of the industry assets are controlled by the top 10 lenders.
The new move appears to be a follow-up on a concern raised by President John Magufuli during his address to members of the business community in December that commercial banks were not reaching out to the common man yet were benefitting from huge government deposits.
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