news - Tanzania: Local Banks Hit By Global Recession

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Tanzania: Local Banks Hit By Global Recession
July 15, 2009

Nairobi, July 12, 2009 (Daily Nation) — Tanzanian local banks have started feeling the pinch of the global recession with at least one major bank reporting possible loan defaults running into TSh168 billion (Ksh10 billion 1Ksh=17Tsh)

Reports indicate some assets advanced to the agriculture sector have begun showing signs of turning unserviceable. Already CRDB Bank has reported possible defaults of trade finance loans.

The Nation has reliably learnt that about TSh271 billion the bank loaned to crop buyers last season is at risk of not being repaid mostly due to falling prices of traditional exports in the work market. By March, only 38 per cent of that cash, which was borrowed to buy crops from farmers and facilitate export transactions, had been repaid.

The Permanent Secretary in the Ministry of Agriculture, Food Security and Cooperatives, Mr Peniel Lyimo, said recently that CRDB Bank has reported having TSh168 billion at risk following traders persistent accounts of inability to service their loans.

Speaking at a forum on the impact of the crisis on Tanzania in March, Mr Lyimo said the most affected borrowers have been cotton, coffee and tea buyers.

“The crop buyers are the ones affected most due to falling prices of traditional exports in the work market,” he said.

CRDB managing director Charles Kimei acknowledged the problem early last week but shed little light on the matter. He told this reporter during the launching of the bank’s Malkia Account service in Dar es Salaam that some of the clients of the bank are likely to default their loans due to falling crop prices in the global market.

Flower farmers have also pleaded for rescheduling of servicing of their loans following decline of prices of their produce and other horticultural products. Between last October and the first quarter of this year, horticultural crops, including flowers, have declined in the world market by as much as 30 to 50 per cent because of the downturn.

According to Tanzania Horticultural Association (Taha), many local flower growers took loans from the Tanzania Investment Bank (TIB) through the guarantee of the central bank to boost their production.

"Should we continue to make losses due to this crunch, we will not be in a position to service these loans as expected," Mr Herwig Tretter, the chief executive officer of Mt Meru Flowers, said recently when briefing the European Community Head of Mission in Tanzania, Mr Tim Clarke, on the performance of the horticultural industry.

Sources from the sector have admitted that trade financing is increasingly becoming risky business as commodity prices continue to plummet in the world market and foreign buyers cut import orders. Experts have argued that if the banks choose to reduce trade financing cash that would greatly affect the already hurt national economy in terms of foreign exchange earnings.

In his Labour Day speech, President Kikwete reiterated the central bank’s economic growth projection of between five per cent and six per cent in 2009 from an earlier eight per cent forecast. He also said that domestic revenue collection in the 2008/09 fiscal year will see a 10 percent shortfall of its 4.73 trillion shilling ($3.53 billion) target.

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