Tanzania is set to reduce the capital reserve requirements of the banks in a bid to boost lending in the country.
According to a Reuters report, the central bank of Tanzania will reduce the ratio from 8% to 7%. Tanzania stipulates a statutory minimum reserve requirement instead of setting interest rates.
Bank of Tanzania told all the commercial banks in a circular: “There is still a need for more growth of credit to the private sector in order to support sustainable economic growth.”
The new decision will be effective from 1 July this year.
In March 2017, the central bank last reduced the reserve ratio, trimming the requirement from 10% to 8%.
The move comes at a time when foreign direct investment dropped across several sectors. The figure dropped from 5% in 2014 to 2% in 2014, the news agency added.
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In December last year, the International Monetary Fund (IMF) said in a report that nearly half of Tanzanian banks are at the risk of insolvency.
The IMF report added that 22 out of Tanzania’s 45 banks would be undercapitalised in the tail risk scenario. These banks represent a total of 32% of overall banking assets.
All the banks were tested against a combined domestic and global shock scenario.
In the report, the company also advised Tanzania to address non-performing loans (NPLs) and increase capital buffers.
Last year, the government also closed five banks over poor performance. They are Covenant Bank for Women (Tanzania), Efatha Bank, Njombe Community Bank, Kagera Farmers’ Cooperative Bank and Meru Community Bank.