Economic Outlook
GDP
Following a challenging 2015 economic conditions, Tanzania is set to improve modestly over the coming quarters with real GDP growth climbing to above 6.0% in 2016 from an estimated average of 5.7% in 2015.
INFLATION OUTLOOK
Inflation has consistently been above the Bank of Tanzania’s (BoT) 5% target over the past decade (averaging over 9 .0%) and we expect this trend to continue over the coming years. Inflation set to range between 6 .0 and 8 .0% over the coming months. Despite the shilling's heavy sell-off and associated inflation pass through, inflation has been contained thanks to favorable food and fuel prices. These benign price conditions are set to continue through in 2016.
Short-Term Outlook (Three-To-Six Months)
Having sold off aggressively through Half 1, 2015, the Tanzanian shilling (TZS) has stabilized against the dollar over the past 5-6 months, even firming of late. External dynamics, notably a strong USD and related shifts in investor perceptions towards Emerging Markets currencies, have been the dictating factor in the shilling's performance over recent quarters and this trend will remain in place over the coming three-to-six months. Fellow East African currencies such as Kenya and Uganda, for instance, have exhibited similar stability over this period. With the USD rally now mostly spent pressures on the shilling will lighten and augur a far more modest pace of TZS depreciation over the coming 12 months or so. We forecast average deprecation of around 12% in 2016 compared to 23% in 20 15.
Long-Term Outlook (Six-To-24 Months)
Weak balance of payments dynamics and uncertainty in the energy sector will drive further shilling depreciation over the next couple of years. External imbalances arising from a shortage of domestic productive capacity are reflected in Tanzania's g aping trade in goods deficit and this will ensure that the country's current account balance remains deep in the red - at the equivalent of between 9 .0% and 11.0% of GDP - over the next two years and these imbalances will remain the key pressure point for the shilling over the medium-term. Tanzania will continue run a large structural deficit for the duration of our 2015-2019 forecast period. The latest data from the Bank of Tanzania confirm that in the year through September 2015, the current account deficit narrowed by 14% to USD4 .2bn thanks to a jump in exports and a sharp deceleration in imports.
Banking Sector Risk Components
Asset Quality
Tanzania's banking sector remains in relatively good health. Asset quality has continued to improve in recent quarters, as illustrated by the ratio of nonperforming loans (NPLs) to total loans. The latter decreased from 8 .5% in September 2014 to 6 .5% in March 2015, reflecting write downs and efforts made by banks to recover NPLs. Overall the sector benefits from relatively healthy asset quality which should continue to benefit from a robust economic outlook.
Funding Structure
The Tanzanian banking sector's funding structure is relatively strong. The sector's loan-to-deposit ratio sat at 78% in 20 15 which though higher than its five year average of 69%, remains comfortable. This implies that Tanzania's banks are predominantly domestically funded, less reliant on external financing, and thus less exposed to external shocks.
Capital Adequacy
The banking sector also has robust levels of capital adequacy, with capital above regulatory requirements. Capital as a percent of total assets remains in line with Tanzania's long -term average, coming in at 12.6% in December 2014 compared to an average of 12.0% of assets since 2009. We do not see scope for a significant increase in leverage over the coming quarters, as tighter monetary conditions and economic uncertainty cause lenders to remain relatively risk averse. Meanwhile efforts to improve banking sector supervision are likely to ensure that banks' average capital ratios remain strong in the coming years.
Regulatory Body Assessment
The Tanzanian banking authorities continue to strengthen financial sector supervision to ensure financial stability and soundness. These efforts have been stepped up following investigations by US authorities into Tanzania headquartered FBME Bank - the country's largest by asset size albeit with most of its operations based in Cyprus - which was labeled as of 'primary laundering concern'. In light of these developments, the BoT is developing its supervision framework, issuing consolidation supervision regulations and issuing memorandum of understandings with other foreign regulators and central banks.
USD/TZS Forecast 2016
During 2015, USDTZS traded at the level of 1674 to 2160 which is almost 30% drop of its value. This drop was contributed by many factors such as decrease of exports, increase of importation of necessity goods, perceived political instability during general election, and decrease of donor funds etc.
The Tanzania Shilling is expected to trade at 2180.00 by the end of this quarter, according to Trading Economics global macro models and analysts’ expectations. Looking forward, we estimate it to trade at 2266.00 in 12 months’ time.
Interest Rate Forecast 2016
Interest Rate in Tanzania is expected to be 12.00 percent by the end of this quarter, according to Trading Economics global macro models and analysts’ expectations. Looking forward, we estimate Interest Rate in Tanzania to stand at 12.00 in 12 months’ time. In the long-term, the Tanzania Interest Rate is projected to trend around 12.00 percent in 2020, according to our econometric models.
Treasury bill Rate Trend
Government still borrowing from commercial banks which will push rate up as per below graph.
The Tanzania Shilling is expected to trade at 2180.00 by the end of this quarter, according to Trading Economics global macro models and analysts’ expectations. Looking forward, we estimate it to trade at 2266.00 in 12 months’ time.
Interest Rate Forecast 2016
Interest Rate in Tanzania is expected to be 12.00 percent by the end of this quarter, according to Trading Economics global macro models and analysts’ expectations. Looking forward, we estimate Interest Rate in Tanzania to stand at 12.00 in 12 months’ time. In the long-term, the Tanzania Interest Rate is projected to trend around 12.00 percent in 2020, according to our econometric models.
Treasury bill Rate Trend
Government still borrowing from commercial banks which will push rate up as per below graph.
Authors:
Godfrey Ndalahwa - Head of Finance
He joined the bank in May 2013 as head of finance and later on in April 2015, was appointed as Non-Executive Director for KCB Burundi. He previously worked for Barclays and NBC Limited holding different executive roles in the area of internal audit, strategy and financial management. Prior to join the Banking Industry, He worked for Deloitte and Coca-Cola Sabco.
Godfrey is certified public accountant and holds Bachelor of honors Degree in Commerce from University of Dar es Salaam and has attended various courses including a one year leadership Programme from University of Pretoria.
Pascal Machango-Head of Treasury
He joined the bank in April 2005 as the Treasury Bank office manager at KCB . He previously worked with Stanbic Bank , Standard chartered Bank and Diamond Trust bank for more than 5 years. He has a B`COM accounting Degree from the University of Dar es Salaam in Tanzania and MBA Finance from Open University on Tanzania. He has attended various advanced courses and workshops in banking and finance. He has over 15 years’ experience in Banking industries holding.
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