Behaviour of Banks Financial Development in Tanzania: Challenges - PowerPoint PPT Presentation

Behaviour of Banks

Financial Development in Tanzania: Challenges for industrial development and job creation Susan Newman (Univ. of the West of England & Univ. of Johannesburg) & Blandina Kilama (REPOA Tanzania) A JOINT REPOA/ UNUWIDER CONFERENCE Transformation for Growth, Employment and Poverty Reduction Hyatt Dar es Salaam, Tanzania 28 November, 2016

Outline Outline • Introduction and Background • The Study: Dynamics of Real Sector vs Financing • Empirical observations • Historical Evolution • Results -Key informants interviews • Conclusion

Introduction The Share of Agriculture in GDP has been falling in real and relative terms • The share of agriculture - ↑from 26.8% in 2007 to 31.2% in 2013 (at basic prices), • The share of agriculture - ↓ from 26.8% in 2007 to 23.8% in 2013 (at constant prices) The Share of Industry and Service has been rising • The share of industry - ↑ from 20.2% in 2007 to 22.7% in 2013 (at basic prices), • The share of industry - ↑ from 20.2% in 2007 to 21.5% in 2013 (at constant prices), • The share of services - ↑ from 47.4% in 2007 to 41% (at basic prices) and 48.7 (at constant prices) in 2013, Employment: Agriculture employs the majority- increase employment in informal sector - secondary activities dominated by construction and mining • The share of employment in agriculture ↓ from 84% in 1990/91 to 74.6% in 2010 (note the change in definition) to 65.6% in 2014 • The share of employment in industry observes little change while service experience a small rise in employed persons. • Of those engaged in informal sector, service accounts for most of the employed persons, with doubling from 12.4% in 2006 to 26.4 in 2014. • A view of secondary activities offers a different perspective, where construction takes a lead while on the informal secondary activities mining takes a lead.

Dynamic Dynamics s of of Finan Finance an ce and d the R the Real eal Economy Economy Financial development a crucial determinant of high economic growth rates. • Tanzania has seen expansion of providers of finance from registered banks of non-bank depository organisations, micro lenders and other financial institutions • Financial intermediation itself, based on its measured contribution to GDP, has been growing at an average rate of 10.6% per annum between 2005 and 2010 compared 7.5% for the five years between 1999 and 2004

Dyna Dynamics mics of of Fina Financ nce e an and th d the e Rea eal l Econ Economy omy-2 The study broadly aims to provide knowledge on types of financial institutions, financial regulation and industrial policy that are more likely to support rapid sustainable accumulation, job creation under improved labour conditions and relations Main Questions • How are finance allocated across economic activities? • What intermediary institutions make up the Tanzanian Financial Sector and what are their operation modalities? • What is the relationship between operation modalities and credit extension?

Deposit Money Bank Assets/ (Deposit Money + Central) Liquid Liabilities/GDP Bank Assets 0.6 0.5 1.2 0.4 1 0.8 0.3 0.6 0.2 0.4 0.1 0.2 0 0 1960 1962 1964 1966 1968 1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 1960 1962 1964 1966 1968 1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 Low income median Tanzania lower middle income median Low income median Tanzania lower middle income median Central Bank Assets / GDP Bank Credit/ Bank Deposit 0.18 1.4 0.16 1.2 0.14 1 0.12 0.8 0.1 0.6 0.08 0.06 0.4 0.04 0.2 0.02 0 1960 1962 1964 1966 1968 1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 0 1960 1962 1964 1966 1968 1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 Tanzania Low income median lower middle income median Low income median Tanzania lower middle income median Data source: BOT 2013

Som Some e Obser Observa vations tions at the t the Na National tional Le Level el Deposits into and credit extended by all depository corporations in Tanzania 16000 2.5 14000 Billions TSh (current) 2 12000 10000 1.5 8000 1 6000 4000 0.5 2000 0 0 Jun-94 Aug-95 Oct-96 Dec-97 Feb-99 Apr-00 Jun-01 Aug-02 Oct-03 Dec-04 Feb-06 Apr-07 Jun-08 Aug-09 Oct-10 Dec-11 Feb-13 Deposits Domestic credit Ratio of credit to deposits (right axis) Data source: BOT 2013

Som Some e Obser Observa vations tions at the t the Na National tional Le Level el Commercial Banks and the Allocation of Capital in the Tanzanian Economy 16,000,000 75 14,000,000 70 12,000,000 10,000,000 TSh millions Percentage 65 8,000,000 60 6,000,000 4,000,000 55 2,000,000 0 50 2007 2008 2009 2010 2011 2012 Total domestic lending by commerical banks Securities held by commercial banks (asset???) Deposits in commercial banks Lending to deposit ratio (right axis) Data source: BOT 2013

Some Som e Obser Observa vations tions at the t the Na National tional Le Level el Liabilities Liabilities of Commercial Banks 20,000,000 100% 18,000,000 90% 16,000,000 80% 14,000,000 70% TSh millions 12,000,000 TSh millions 60% 10,000,000 50% 8,000,000 40% 6,000,000 30% 20% 4,000,000 10% 2,000,000 0% 0 2007 2008 2009 2010 2011 2012 2007 2008 2009 2010 2011 2012 Deposits Bank of Tanzania Due to other domestic banks Other domestic Foreign banks Foreign Other Capital and reserves Data source: BOT 2013

Som Some e Obser Observa vations tions at the t the Na National tional Le Level el Deposits Commercial bank deposits by depositor type 100% 16,000,000 90% 14,000,000 80% 12,000,000 70% 10,000,000 60% 50% 8,000,000 40% 6,000,000 30% 4,000,000 20% 2,000,000 10% 0% 0 2007 2008 2009 2010 2011 2012 2007 2008 2009 2010 2011 2012 Central Government Other Financial Corporations State and Local Government Public Nationalfinancial Corporations Other Nonfinancial Corporations Other Resident Sectors Other Depository Corporations Non-resident Data source: BOT 2013

Som Some e Obser Observa vations tions at the t the Na National tional Le Level el Domestic Lending Composition of domestic lending by commercial banks 2007-2012 100% 10,000,000.00 90% 9,000,000.00 80% 8,000,000.00 70% 7,000,000.00 Millions TSh Millions TSh 60% 6,000,000.00 50% 5,000,000.00 4,000,000.00 40% 3,000,000.00 30% 2,000,000.00 20% 1,000,000.00 10% 0.00 0% 2007 2008 2009 2010 2011 2012 2007 2008 2009 2010 2011 2012 Loans to the Central Bank Loans to Other Depository Corporations Loans to Other Financial Corporations Loans to Central Government Loans to State and Local Government Loans to Public Nonfinancial Corporations Loans to Other Nonfinancial Corporations Loans to Other Resident Sectors Loans to Non-residents Data source: BOT 2013

Som Some e Obser Observa vations tions at the t the Na National tional Le Level el Lending by Commercial Banks Loans to Nonresidents 100% % of total credit extension by commercial 90% 80% Loans to Other Resident Sectors 70% 60% Loans Other banks 50% Nonfinancial Corporations 40% Loans Public 30% Nonfinancial 20% Corporations Loans State and Local 10% Government 0% 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Data source: BOT 2013

Some Some Obs Obser erva vations tions at the t the Na National Le tional Level el Commercial bank domestic lending by borrowing sector 100% Personal and other services % total credit extended by commercial banks) Tourism, hotels and 80% restaurants Trade 60% Transportation and communication 40% Building, construction, real estate and leasing Mining and 20% manufacturing Financial intermediaries 0% 1967 1970 1973 1976 1979 1982 1985 1988 1991 1994 1997 2000 2003 2006 2009 2012 Agriculture, forestry, fishing and hunting -20% Data source: BOT 2013

From Nyerere to Magufuli • During the reign of Julius Nyerere: (1961 to 1985): Tanzania was under the plan economy where the government was the major allocator of resource. • Thus the banking system went hand in hand with the implementation of the plans envisioned • Industry was the highest priority – supported by the funding provided by all banks towards agricultural and industrial development - manufacturing and mining. • During Liberalisation - the reigns of 2 nd to 4 th President we observe that – • The financial sector have increased domestic savings, this has largely not translated to commensurate increases in productive investment. • Credit expansion has favoured personal services, re-estate and construction. The 5 th President – Dr. J. P. Magufuli reign calls for Industrialisation •