The banking sector has remained sound and stable with levels of capital and liquidity above regulatory requirements.

The sector continued to record steady growth with total assets growing by 14.6 per cent to 26.98tri/- at the end of April 2016, compared to 23.55tri/- recorded at the end of April, last year.

As at the end of March 2016, the ratio of core capital to total risk weighed assets and off-balance sheet exposure was 18 per cent compared with the minimum legal requirement of 10 per cent.
According to Bank of Tanzania (BoT) Monetary Policy Statement for the period ended June 2016 the ratio of liquid assets to demand liabilities stood at 36.6 per cent, which was above the minimum regulatory limit of 20 per cent. Similarly, the stock of gross foreign assets of banks was 915.7 million US dollars recorded at the end of April 2016.

The quality of the banking sector’s assets slightly deteriorated as reflected by the ratio of non-performing loans (NPL) to gross loans, which increased to 8.3 per cent from 6.7 per cent recorded at the end of March, last year.

Most banks maintained NPL levels below 5 per cent and those with levels above this have been required to bring NPLs to below 5 per cent. Deposits continued to be the main funding source in the banking sector assets, accounting for 86.1 per cent of total liabilities.

The other major source of funding was shareholders’ equity. During July 2015 to April 2016, overall liquidity condition among banks was generally satisfactory, with occasional periods of liquidity tightness.

The bank had to address the situation by granting reverse repos, while some banks increased their access to Lombard and intraday facilities to square their liquidity position.

Reflecting liquidity condition, interest rate at which commercial banks lend cash to each other overnight (the overnight interbank cash market (IBCM) interest rate) declined from a peak of 29.98 per cent in July 2015, owing to moderate fiscal outlays and tight monetary policy stance pursued by the bank, to 6.27 per cent in September 2015, the period when liquidity hovered above the target band due to sizable government outlays.

The IBCM rate rose in October 2015 following increased demand for cash, before it subsequently eased and stabilised beginning January 2016. The observed stability in IBCM rate is also associated with the increased monetary policy focus on stabilisation of banks’ free reserves, as a step in the direction of improving the monetary policy framework.