Private sector lending sees year-on-year slowdown

DAR ES SALAAM: PRIVATE sector credit experienced a slowdown, growing by 16.7 per cent in the year ending August, down from the 21 per cent growth recorded during the same period last year.

This decline may be attributed to lenders shifting their focus toward more lucrative debt securities.

As the appeal of these securities rises, lenders may perceive them as lower-risk and more rewarding investments compared to traditional loans.

The Bank of Tanzania (BoT) has maintained a re-opening programme skewed towards longterm bonds, like those with 20- year and 25-year tenures, which have shown robust demand from investors.

In 2023/24, Treasury bonds auctions were oversubscribed, reflecting a strong preference among investors, including retail participants, for longer maturities, driven by the appealing yields offered by these securities.

This trend underscores the importance of Treasury bonds as a safe haven for investors amid economic uncertainties, further complicating the landscape for private sector financing.

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The latest BoT monthly economic report shows that credit extended personal loans—primarily credit extended for small and medium enterprises (SMEs) remained the largest component of credit to the private sector at 36.4 per cent, followed by trade at 12.8 per cent and agriculture at 11.8 per cent.

During the period under review, the central bank continued to implement monetary policy aimed at minimising the pass-through effects of exchange rate depreciation on the inflation outlook and ensuring support for economic growth.

The 7-day interbank rate was expected to fluctuate within +/- 200 basis points of the 6 per cent Central Bank Rate (CBR) corridor, in line with the monetary policy stance.

However, due to the high demand for liquidity in the Interbank Cash Market (IBCM), driven by seasonal factors such as increased shilling demand for crops purchase, the 7-day interbank rate averaged 8.17 per cent in August this year which was 0.17 percentage points above the CBR corridor.

In response, the BoT injected liquidity through auctioning reverse repos worth 1.113tri/-in a bid to improve the liquidity condition and lower the 7-day rate to the CBR corridor.

The growth of the extended broad money supply was consistent with the monetary policy stance. During the period, the broad money supply grew by 10.6 per cent, almost the same as the growth registered in the preceding month, but was lower than the 17.4 per cent growth in the same month last year.