TanzaniaInvest interviewed Abdulmajid Nsekela CEO & MD of CRDB Bank Tanzania, the largest bank in the country in terms of assets, loans & advances and customer deposits.
In this interview, he comments on the current state of the Tanzanian banking sector and its capacity to accompany the economy during the Covid-19 pandemic, and shares the bank’s strategy and its emphasis on supporting SMEs, manufacturing, trade, agriculture, and other key sectors that drive the economy forward, while investing in digital innovation.
There were 51 licensed banks in 2019 and by mid-2020, the number has decreased to 49 after the latest merger. Is this number in line with the market, characterized by a large population and a very low banking penetration? Do you expect more consolidation to take place or new players to enter the market?
Banking is not about the number of banking institutions, but their capability to serve the market. I believe that 49 banks are adequate for the population size simply because financial services have evolved and physical presence is no longer a determinant of adoption. With improved technologies and connectivity, banks are increasingly providing services via cellular networks and the internet, which then provides an opportunity for inclusion beyond the traditional brick-and-mortar models.
For a rapidly growing industry like banking in Tanzania, consolidation is expected to happen and may occur from time to time. I am happy that the regulator has remained steadfast in ensuring liquidity, which shows a healthy trend for the industry. It is also indicative of a brighter future for the financial services sector.
However, with the COVID-19 disruptions, we expect that due to the reduced international business, especially during the second and third quarters of 2020, there will be resultant challenges that may impact capital, especially for smaller players. The disruption has obviously had an impact on specific portfolios, especially the hospitality and service sectors, imports and exports. If non-performing loans (NPLs) increase (mainly because of the inability by affected businesses to meet their loan obligations), we are likely to see declining liquidities, which of course would prompt the regulator to institute measures to protect investments.
But as an industry, we are lucky to have a switched-on regulator, who–alongside close surveillance–instituted timely measures aimed at relieving the customer of the pressure brought about by the COVID-19 pandemic. The measures included lowering the Statutory Minimum Reserves (SMR) from 7% to 6%, which has created liquidity in the economy. With this, Banks have additional ability to continue lending to customers and support priority demands linked to COVID-19 despite the economic slowdown.
A reduction of interest rates from 7% to 5% created more room for banks to borrow funds from the central bank for onward lending if required. A reduction on the value of collaterals used against government securities, mainly Treasury Bills and Bonds from 10% to 5 % and 40% to 20% respectively enhanced the ability of Banks to borrow from the Central Bank with less collateral.
But perhaps the most instrumental intervention was the approval of loan restructuring, which has helped banks accommodate borrowers who are adversely affected by the COVID-19 pandemic. It has cushioned customers directly affected by the health crisis and also reduced the risks of non-performing loans.
2019 is the first year that CRDB made significant profit which grew by over 87% to TZS 120 billion with deposits surpassed TZS 5 Trillion. Which were the drivers of this performance? What is your competitive advantage?
In 2019, we made a deliberate decision to transform our operations with a focus on building internal efficiencies. We also invested in the right technologies, including upgrading our ICT systems to deliver a more robust service to our customers. These efforts paid off and, we continue to see improvements in our revenue streams across the entire operations.
A major transformation, which has yielded positive results, was the change of the operating model. We adopted an agile model and removed structural inefficiencies that were impeding growth. We went further and reviewed our branch operating model and decentralized services hence creating a more responsive network management system.
Essentially, we made some considerable investments towards improving our technology capabilities including upgrading our ICT infrastructure and accelerating digitization, which we see as cost effective. In addition, we re-engineered our internal processes, effectively aligning our procedures with customer journeys and embarked on successive automations that have delivered a better experience for our customers. This has resulted in improved turnaround time, increased revenues and enhanced experiences for our customers.
We also leveraged key sectors of the economy to drive growth focusing on the vibrant SME and trade sectors, which have been instrumental in driving the economy. We focused on providing solutions that address capital challenges for customers, which resulted in sustained incomes.
As a market leader, we understand that we ought to show the way in service provision and, this requires that we stay ahead of the pack. We have invested in a robust digital innovation and, reinforced our transformation capability to innovate for the future.
Our subsidiaries also played a significant role in driving growth with good performance in almost all key metrics. CRDB Bank Burundi SA net profit rose 146 % to TZS 6.1 billion, up from TZS 2.4 billion reported in 2018. It is the highest ever profit for the subsidiary since its establishment in 2012. The subsidiary also recovered all its accumulated losses, while building healthy reserves for the first time since inception.
CRDB Insurance Brokers Limited posted a 23% growth in net profit to TZS 1.6 billion at the end of the 2019 financial year, up from TZS 1.3 billion reported in 2018. The total income generated by the subsidiary stood at TZS 7.82 billion, representing 26% growth compared TZS 6.22 billion reported in 2018. The growth was driven by a rise in the uptake of insurance products predominantly in medical care, education, and tourism.
CRDB supports the Government of Tanzania’s drive towards industrialization and the creation of a middle-income economy. Which sub-sectors of the industrial sector, and which other sectors of the Tanzanian economy are your priority? What will be your focus going forward?
Our approach to business is inclusive. We focus on the key sectors that drive the economy forward while enabling citizens to make decent livelihoods from their day to day activities. Traditionally, we have had a long-standing commitment to financing the agriculture value chain, which we believe provides the raw material required to bring agro-processing. It, therefore, goes without saying that agro-processing is our focus because we understand its net impact on the economy, seeing that agriculture contributes to nearly a quarter of the country’s GDP.
But as a business, we have diversified our client portfolio and are currently supporting almost all sectors. When you look at our 2019 financial year, you will realize that CRDB Bank extended support to all sectors of the economy with agriculture, manufacturing, and trade taking a combined share of 27% of our total funding portfolio.
We place considerable focus on trade because this is where most SMEs fall. For us, SMEs play an integral role in terms of production, employment generation, contribution to exports & facilitating equitable distribution of income.
You mentioned that CRDB Bank remains at the forefront of innovations, making significant progress in designing products and services that are more inclusive. Can you give us some examples and how they can benefit Tanzanians?
At CRDB Bank, we see innovation as a continuous process of creating new things and, therefore, we are entrenching it as a culture. Our products consider the diverse needs of our customers and are primarily consumer-driven. We believe that our ability to respond to the diverse and fast-evolving needs of our customers will determine our differentiation.
For instance, we have a specially designed product for micro-entrepreneurs best-known as machinga. The product is a mobile-based loan aimed at addressing capital challenges among this group, who rely on selling their wares to make a living. As you may appreciate, the Machingas have a small cash cycle that starts with acquiring merchandise in the morning and hawking it all day to take a profit. Often, they run out of capital which then means they won’t be productive on that day. Machinga Loan takes care of this challenge by giving them instant access to cash to acquire their wares. We developed this product, taking advantage of a government program to enumerate the micro-entrepreneurs, which we see as an opportunity to financially include them. The long-term plan is to build their capacity to be able to grow their businesses.
We also launched a specialized product for university students, christened as Boom Advance. The product targets to empower students to allow them to focus on their academic endeavours, irrespective of the delays in disbursement of their loans.
But more importantly, we have expanded our scope of inclusion to target other underserved groups such as women through a Women Access to Finance Initiative (WAFI). The initiative seeks to empower women to make financial choices that suit their capabilities and opportunities available to them.
We plan to leverage both technology and our extensive distribution network to drive inclusion.
Notwithstanding some current headwinds, and the ongoing Covid-19 pandemic, Tanzania is expected to remain among the fastest-growing economies. How are you adapting to this environment? Which role do you aim to play in the socio-economic development of Tanzania over the next few years?
Despite the COVID-19 pandemic occasioning far-reaching disruptions in the global economy, it has heralded new opportunities for businesses. Our instinctive response as a business was to, first of all, help our customers navigate the tumultuous period by working closely with them to anticipate immediate and long-term challenges. We did not shy away from helping our customers, especially those in sectors most affected by the pandemic such as tourism. In line with the regulator’s measures, we reached out to all our borrowing customers in the sector and assessed their individual situations and made interventions that were best suited for them including loan restructuring and in extreme cases giving moratoriums.
In responding to the guidelines provided by the authorities to mitigate the spread of the virus, we created a compelling digital banking proposition for our customers thereby enabling them to do most of their banking transactions through digital channels.
Internally, we have accelerated digital projects that focus on improving the customer experience, seeing that the pandemic has opened a fresh set of social needs never anticipated in the concept of banking. More importantly, we are working with enterprises to help them identify new opportunities resulting from the pandemic.
As a homegrown brand in Tanzania, we want to be at the forefront of the socio-economic transformation of our country. Our strategic plan has considered the national economic blueprint in which has steered Tanzania to become a middle-income economy.
We will continue focusing on supporting the agriculture value chain, trade and manufacturing sectors, which play a central role in the country’s economic development.
We also continue playing an active role in ensuring the achievement of a robust infrastructural capacity because it will have an impact on the economy in the long term. This is why we have been keen on supporting the country’s infrastructure projects such as the Nyerere Hydropower Project, the Standard Gauge Railway (SGR), and the expansion of the Julius Nyerere International airport.