Saturday, February 26, 2011

TANZANIA: GLOBAL FINANCIAL CRISIS HANGOVER ROCKS LOCAL BANKS



THE hangover of global financial crisis rocked many banks to impact negatively on their income statements for last year.

The aftermath of the crisis saw profits of many financial institutions eaten up by impairment losses on loans and advances, which have to be provided for if the loan is not tendered for 180 days.

The biggest affected bank is the National Bank of Commerce (NBC), which posted the historical lowest-ever pre-tax profit of 5.4bn/- in 2010, since privatisation in 2000.

The NBC Managing Director, Mr Lawrence Mafuru, said when announcing its last year's financial results that the crisis "hit most of its retail clients who failed to payback their loans on time".

The NBC's impairments fund is almost equal to the combined net profits of Citibank and Standard Chartered Bank, which posted 21bn/- and 20bn/- respectively.

However, StandChart was the only bank that did not set aside fund for doubtful debts for two years consecutively; instead wrote off bad debts totalling 2.2bn/- last year.

TWB despite generating over 1.1bn/- revenue from net and non interest income, saw its income swallowed by impaired fund and other expenses to post deepening net loss of 1.07bn/-.

Mr Mafuru, who doubles as the Chairman of Tanzania Bankers' Association, predicted that most banks profit last year would go down as the results of the global financial crisis repercussion.

CRDB targeted to make net profit of 65bn/- last year. The bank failed to meet its forecast due to high cost base and impairment losses on the loans and advances of 21.5bn/-, according to the Weekly Market Commentary issued by Tanzania Securities -- stock brokerage firm.

The loan and advances impair-effect did not touch the National Microfinance Bank (NMB). The Bank, which is the most profitable in 2010, reduced the amount set aside from 7bn/- of 2009 to 1.67bn/- in 2010.

Nevertheless, the crisis does not end in eating banks profits margin but also reduced the government taxes, as it is charged after deducting expenses from the incomes.

For instance, NBC income tax provision dropped dearly to a mere 3.2bn/- for the year under review compared to 17.2bn/- of previous year.

This comes at a time when the Tanzania Revenue Authority (TRA) is struggling to meet its tax target, after missing it in the first five months of this fiscal year. It only managed to surpass the target last December by small percentage of three per cent.

After passing of the said days the loan's interest is omitted on profit docket and treated as loss, charged interest on income statement. The bank then is obliged to recover the bad debts using various measures according to the law of the land.

Last September, Bank of Tanzania (BoT), gave banks three years for topping up their capital requirement ration, raised by 300 per cent. BoT wants the minimum capital requirements to increase from 5bn/- to 15bn/-, for commercial banks.

For non-bank financial institutions, the requirement pushed the capital requirement from 2.5bn/- to 7.5bn/-. The amount was raised to enable banks' self-bailout in case of financial crisis in a bid to avert using taxpayers' money.

Senior Lecturer, Researcher and Consultant in Economics and Business, Mzumbe University Dar es Salaam Business School, Dr Honest Ngowi said banks have to plan for their own collapse to avert using taxpayers' money.

"They have to write their own 'living will' saying specifically how they will bail themselves out should a crisis emerge in the future," Dr Ngowi said.

In 2009, to avert amplification of global crisis, BoT provided a 1.7trn/- stimulus package to bail out firms, mostly from cotton sector, from a total collapse, pulling with it the banking sector.

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