PERSONAL LOANS FALL TO NEGATIVE 6PC, BOT SHOWS

In Summary
That happened because commercial banks imposed tough conditions on the provision of personal loans to avoid risks. Bankers foresee a further shrinkage in personal loans, which account for 19 per cent of all loans.

Dar es Salaam. The provision of personal loans dropped to -5.8 per cent during the second quarter of 2017 from 36.7 per cent in a similar period in 2016, the Bank of Tanzania (BoT) data shows.

That happened because commercial banks imposed tough conditions on the provision of personal loans to avoid risks.

Bankers foresee a further shrinkage in personal loans, which account for 19 per cent of all loans.

That will be the case as lenders are becoming more uncertain about debt repayments.

“Banks have been more selective on lending to avoid risks at a time when companies are massively retrenching employees,” said Mr David Moshi, head of credit risks at Standard Chartered Bank Tanzania.

He told The Citizen yesterday that defaulting for salaried employees has increased to 10 per cent and more, against the regulatory benchmark of 4.5 per cent.

“Banks will conduct serious vetting to prospective personal borrowers with their companies and others have stopped issuing, which resulted in the reduction of personal loans portfolios,” he said.

Personal loans were considered as assets for many commercial banks, as helped to cushion financial gaps caused by the government decision to transfer its deposits from commercial banks to the central banks.

Personal loans, which are categorically recognized as unsecure loans were previously regarded as bank’s assets but now, following the adoption of the new financial reporting standards, they will be considered losses, a day after being issued.

“Things will never change in a shorter period of time as banks are worried about the new accounting standards and will offer stringent security requirements for prospective borrowers,” said an expert.

The consequences of reduced personal loans, according to financial experts, include the reduced purchasing power, reduction of money supply and decrease of revenue for both banks and the government.

Bankers say the massive drop in the provision of personal loans will cut bank revenues by 10 per cent.