The International Monetary Fund (IMF) has said around half of the Tanzanian banks are at the risk of insolvency and lack resilience against market shocks.
The organisation announced the vulnerabilities after its executive board discussed the Financial System Stability Assessment (FSSA) of Tanzania.
IMF report on Tanzania banking system:
In the FSSA, IMF stated that solvency stress tests have found that 22 out of Tanzania’s 45 banks, representing 32% of banking assets, would become undercapitalised in the tail risk scenario.
IMF assessed the banks against a scenario of combined domestic and global shock.
It added that currently six banks in the African nation were undercapitalised at the end of last year against a regulatory threshold of 12%.
The report added: “The combined effects of sharply declining real GDP growth, rising interest rates, and depreciation of the T Sh (Tanzanian Shilling) reduce banks’ profitability and capital ratios, mostly through their impact on credit losses and net interest income.”
IMF advised Tanzania to address non-performing loans (NPLs) and increase capital buffers of the banks to increase their resilience. The NPL ratio has increased from 6.8% in 2014 to 11.5% in 2017.
Tanzania banking system:
The announcement comes at a time when Tanzania is implementing various measures to regulate the banking sector, reported Reuters.
Last month, Bank of Tanzania suspended five banks for one month from trading in the interbank foreign exchange market for violating regulatory rules.
In January, the central bank cancelled the licences of five banks for being ‘critically undercapitalised’.