By Azania Post Reporter
THE Bank of Tanzania (BoT) has said that the strong build up of administration deposits has led to a decline of net credit to the central government.
According to BoT monthly economic review for October 2017, the credit declined by 30.5 percent in the year ending September 2017 compared to an increase of 7.1 percent in the year ending September 2016.
Domestic credit contracted by 8.0 percent during the year ending September 2017 compared to expansion of 10.7 percent in the corresponding period in2016, with most of the decline occurring in net credit to the central government .
By contrast, central government borrowing from banks increased, reflecting sale of government securities for fiscal operations Growth of credit to private sector remained subdued, despite monetary policy easing.
The credit decreased by shillings 266.5 billion to a stock of shillings 16,356.3billion at the end of September 2017, from shillings 16,622.8 billion at the end of September 2016 .
A pick up in risk premium following increase in non-performing loans, slower growth of private deposits, and portfolio diversification in favour of low risk government securities observed in the recent months remained the main reasons behind the developments in credit growth.
Despite the overall decrease in credit to private sector, the review said developments were mixed when viewed by individual activities. Credit growth picked up for manufacturing, building and construction, and hotels and restaurants activities.
In terms of share in total credit outstanding, trade and personal activities remained dominant, accounting for 20.7percent and 17.3percent, respectively.
There was a notable increase in growth of net foreign assets (NFA) of the banking system—Bank of Tanzania and banks—reducing the impact of decline in domestic crediton money supply, the review noted.
Specifically, NFA of the banking system grew by34.4percent in September on year-on-year compared to a decline of 10.7 percent in September 2016.
This follows a sustained build-up of foreign exchange by the Bank of Tanzania through purchases from the inter-bank foreign exchange market, and receipt of external non-concessional loan.
On the contrary, the downward trend of NFA of banks observed in the recent month was sustained in September 2017, owing to increase in the debt owed by banks to year bond.
Weighted average yield to maturity (WAY) for 2-year bond decreased to 11.76 percent from 12.45 percent in the preceding auction, while that of 15-year bond increased to 16.74 percent from and 16.15 percent.