Banks Draw Down BoT Deposits as Credit Demand Picks Up

Commercial banks in Tanzania appear to be putting more money to work in the economy, with new figures from the Bank of Tanzania (BoT) showing a decline in deposits held at the central bank. This trend points to stronger lending activity and rising demand for credit.  

According to the BoT’s Statement of Financial Position for May 2026, deposits held by commercial banks and non-bank financial institutions fell to TSH 6.11 trillion from TSH 6.37 trillion in April. Over the same period, the central bank’s cash and cash equivalents edged down to TSH 3.99 trillion from TSH 4.03 trillion, while its gold holdings rose by 12.7 per cent to TSH 5.84 trillion as part of a broader reserve diversification strategy.  

The decline in commercial bank deposits suggests that lenders are deploying more of their available liquidity into loans and other income-generating activities rather than holding excess funds at the central bank. Typically, when banks reduce their balances with the central bank, it reflects increased lending to businesses and households or greater financing activity across the economy.  

A Resilient Banking Sector  

The latest figures come amid a banking sector that has remained resilient despite global economic uncertainty. According to the Bank of Tanzania’s latest Financial Stability Report, the sector recorded robust growth in 2025, with total assets rising by 23.8 per cent to TSH 76.98 trillion. Private-sector credit grew by 23.5 per cent, driven largely by lending to the mining, trade, agriculture and construction sectors. The ratio of non-performing loans fell to 2.8 per cent, well below the regulator’s prudential threshold and the lowest level in the East African Community.  

The sustained growth in lending reflects the BoT’s accommodative monetary policy, which aims to support economic activity while maintaining price stability. Earlier this year, the central bank kept its Central Bank Rate at 5.75 per cent, citing strong private-sector credit growth, supported by ample liquidity and sustained demand from businesses and households.  

What Falling Deposits Signal  

Lower balances held at the central bank do not necessarily signal tighter liquidity in the banking system. Commercial banks maintain deposits with the BoT to meet reserve requirements, facilitate payment settlements and manage short-term liquidity needs. As economic activity strengthens, excess reserves are often redirected towards lending, investment and other productive uses that offer higher returns.  

The decline in deposits therefore signals greater confidence in economic conditions and a stronger appetite among banks to extend credit. At the same time, the central bank must continue to manage liquidity carefully to ensure sufficient funds remain available to meet payment obligations, support monetary operations, and cushion the financial system against unexpected shocks.  

Reserve Diversification  

The May balance sheet also highlights a shift in the composition of the BoT’s reserves. While liquid assets declined slightly, gold holdings rose sharply, reflecting a broader strategy to diversify reserve assets amid heightened global uncertainty.  

Central banks around the world have increasingly accumulated gold as a hedge against inflation, geopolitical tensions and volatility in international financial markets. By increasing their gold holdings, reserve managers can reduce reliance on traditional foreign-currency assets while strengthening their long-term store-of-value assets.  

Despite the decline in cash balances, the BoT continues to maintain sufficient liquidity to support monetary operations and safeguard financial stability. The central bank has consistently emphasised that adequate liquidity is essential for responding to exchange-rate pressures, meeting external payment obligations, and maintaining confidence in the financial system.  

Outlook  

For businesses, the latest figures are broadly encouraging. A banking sector that is deploying more funds to lending typically improves access to credit for firms seeking working capital, investment finance and expansion opportunities. Sustained credit growth also supports consumption, business investment and job creation, reinforcing Tanzania’s broader economic outlook.  

Analysts will be watching whether the decline in commercial bank deposits continues in the coming months. If accompanied by sustained credit growth, healthy liquidity levels and stable asset quality, the trend would indicate that the banking sector is increasingly channelling capital into productive economic activity rather than holding excess liquidity on its balance sheet.