The Bank of Tanzania (BoT) has said National Bank of Commerce (NBC) liquidity position is and continues to be strong, despite making a pre-tax loss of over 20bn/-.

BoT Governor Professor Benno Ndulu

BoT Director of Banking Supervision, Mr Agapiti Kobelo, told the ‘Sunday News’ in Dar es Salaam   that up to the end of this year’s second quarter, the NBC’s liquidity ratio was over double the minimum regulatory requirement of 20 per cent.

“(The amount) indicates the ability to meet cash and near cash obligations, which stood at 43.01 per cent,” Mr Kobelo said over the weekend, adding that NBC’s ratio of loans to deposits is at 58.6 per cent compared to the maximum allowed limit of 80 per cent.

The regulator had to explain the loss, which is the biggest since the adoption of financial sector liberalization in mid 1990s, to be made by any financial institutions in quarterly or annual basis and also the first since the bank was privatized and sold to South Africa’s ABSA Group in 2000.

The regulator explained that the significant amount of the loss was in relation to Technical Assistance (TA) costs amounting to 14.39bn/-, which was incurred from 2008 to 2011 and booked during the quarter that ended in June 2012.

“TA was being provided by ABSA,” the Director for Banking Supervision confirmed to ‘Sunday News’ in an interview.   Another contributing factor to the loss during the quarter that ended in June was in relation to 16.49bn/- set aside to cover for doubtful debts—loan impairment losses—as explained by our sister paper the ‘Daily News’ recently.

Despite the loss, he said, the bank’s absolute capital stood at 121bn/- as at end of June, which was above the minimum legal requirement of 15bn/-.   “The bank’s ratio of core capital to total risk-weighted assets or capital reserved required to cover risk assets stood at 11.1 per cent, which was above the legal minimum ratio of 10 per cent.”   “The bank has been required to create more capital buffer above the minimum legal requirement,” the Director further said.

In relation to deposits declining by 3.31 per cent BoT said was due to preparation to comply with new guidelines that not more than 25 per cent of Trust Accounts of Mobile Payment Operators (MPOs) should be maintained in a single bank.

“The bank had to release about 30bn/- for MPOs to other banks to comply with the guidelines,” Mr Kobelo said; “NBC was the largest MPOs account keeper for Vodacom, Tigo, Airtel and Zantel.”   The deposits also declined because the bank recently adopted a strategy to reduce expensive deposits, where depositors demanded high interest rates, hence, fixed deposits of about 49bn/- from institutional depositors were released.

Generally, the bank’s Non Performing Loans (NPLs)-loans which are not being serviced properly by borrowers-have been improving by 57.57 per cent over the last one year.   During the quarter ended in June, NPLs stood at 82.42bn/- compared to 129.88bn/- recorded in June 2011.

The higher amount of NPLs recorded last June was substantially a result of the effects of the global financial crisis and subsequent global recession-affecting customers engaged in external trade.   “The key yard stick for measuring NPLs is the ratio of NPLs to Gross Loans.

Looking at the ratio, NBC’s position indicates improvement over time,” Mr Kobelo explained further.  For the quarter that ended in June, the bank’s NPL ratio stood at 11.1 per cent compared to 17.04 per cent of March 2011 and 16.64 per cent of June 2011.

Nevertheless, NBC made a profit before tax of 16.23bn/- in 2011 while in the first quarter of the year, the bank made pre-tax profit of 2.46bn/-.

By ABDUEL ELINAZA, Tanzania Daily News