Tanzania Banking Sector Report – 2021 Analysis Update

The Tanzanian banking sector recorded strong growth in 2019, with profits before tax reaching TZS 590 billion, +88% more than TZS 313 billion in 2018.

In 2020, there were 49 licensed banks in Tanzania. Their total assets reached TZS 33 trillion in 2019; a growth of 9% from TZS 30 trillion in 2018.

With so many banks, and a population largely unbanked, Tanzania has recorded significant growth in the level of financial inclusion over the last decade.

Meanwhile, according to the Bank of Tanzania (BoT), overall, the banking sector remained sound and stable in terms of profitability, capital adequacy, liquidity, and asset quality.

Tanzania Banking Sector Performances

According to the latest Financial Sector Supervision Annual Report of the Bank of Tanzania (BoT), in 2019 the Tanzanian banking sector grew in terms of assets, loans, deposits, and profits compared to 2018.

Banking Sector Earnings

During 2019, the sector remained profitable as depicted by Return on Assets (ROA) and Return on Equity (ROE) ratios, which increased to 1.86% and 7.13% from 1.04% and 2.88% in 2018, respectively. The increase in profitability was driven by an increase in interest income consistent with growth in the loan portfolio, and a decrease in interest expenses.

The sector recorded a record profit before tax of TZS 590 billion in 2019, compared to TZS 313 billion in 2018 (+88%).

Capital Adequacy

In 2019, the sector remained adequately capitalized. Core and total capital adequacy ratios stood at 17.04% and 18.06% compared to 16.20% and 18.14% in 2018, respectively. Both ratios were above the minimum legal requirements of 10% and 12% for core and total capital, respectively.

The increase in the core capital adequacy ratio is partly explained by retention of profit and additional capital injection. The decrease in the total capital adequacy ratio is ascribed to regulatory measures to remove the one percent general provision requirement on unclassified loans. The measure was taken to enable banks and financial institutions to play a more active role in the provision of credit to the private sector.

Liquidity

The banking sector continued to maintain adequate liquidity levels well above the minimum regulatory requirement of 20%; the amount was sufficient to meet maturing obligations and fund growth in assets.

During 2019, the ratio of liquid assets to demand liabilities stood at 32.14% compared to 35.22% in 2018 and was attributed to a change in portfolio mix in favor of loans, advances, and overdrafts.

The ratio of gross loans to total deposits increased to 88.24% in December 2019 from 85.07% reported in 2018, indicating that deposits remained the main source of funding.

Assets Growth & Quality

The sector’s total assets grew by 9.15% to TZS 33,161.80 billion in 2019, mainly financed by an increase in deposits, borrowings, and retained earnings.

In the same year, earning assets recorded an increase of 9.32% to TZS 26,435 billion, implying the improved ability of the sector to generate income from operations.

The ratio of earning assets to total assets remained broadly unchanged at around 80%, indicating that a significant part of the sector’s assets continued to be channeled to productive sectors of the economy

Loans, advances, and overdrafts accounted for 53.93% of total assets, while deposits accounted for 84.66% of total liabilities in 2019. Loans, advances, and overdrafts recorded a growth rate of 10.42% to reach TZS 17,884.03 billion in 2019 compared to a growth of 6.83% registered in 2018. Deposits increased by 7.16% to TZS 23,818.11 billion.

The observed growth was attributed to a favourable macroeconomic environment, BoT’s sustained accommodative monetary policy, and other regulatory measures taken to support the private sector’s credit growth.

Balances with other banks, cash, and items for clearing decreased by 3.43% in 2019 compared to 0.21% recorded in 2018. The decrease was associated with a portfolio shift to more profitable investments such as loans, advances, and overdrafts.

Investment in debt securities increased by 4.04% compared to a decline of 10.52% recorded in 2018.

Tanzania Banks’ Loan Portfolio

In 2019, the loan portfolio continued to be diversified in various sub-sectors of the economy. Personal loans accounted for 29.04% of total loans, followed by Trade (16.15%), Building, Construction and Real Estate (10.88%), Manufacturing (9.89%), and Agriculture (9.64%). The remaining sectors accounted for 24.40% of the loan portfolio.

The average lending rates by banks remained stable with a gradual downward trend over the last two years. The rate declined to 16.9% in 2019 from to 17.0% in 2018 and 18.0% in 2017.

The ratio of non-performing loans (NPLs) to gross loans decreased to 9.58% from 10.51% in 2018 but was above the desirable level. The ratio further declined to 9.3% in December 2020. The improvement was attributed to various measures taken by BoT, including requiring banks and financial institutions to enhance credit-underwriting standards and loan recovery efforts. Banks were also required to adhere to the Tanzania Banker’s Association Code of Conduct to, among others, enhance staff integrity.

In addition, BoT continued to sensitize banks and financial institutions on the importance of sharing credit information and usage of credit reference bureau services to reduce information asymmetry in their credit underwriting processes and eventually reduce the level of NPLs.

Mortgage Finance

According to the Tanzania Mortgage Refinance Company Limited (TMRC)-a financial institution owned by banks and non-bank Tanzanian institutions to support banks to do mortgage lending-the outstanding mortgage debt as of 31st December 2019 stood at TZS 439 billion, compared to TZS 421 billion at the end of 2018. It further increased to TZS 464 billion as of 31st December 2020.

In 2019, the ratio of mortgage debt outstanding to Gross Domestic Product (GDP) stood at 0.36% and decreased to 0.30% in 2020. The typical interest rates offered by mortgage lenders ranged between 15% and 19% in 2020, compared to 22% and 24% in 2010.

The mortgage market is dominated by five top lenders, who command 69% of the market. CRDB Bank is the market leader commanding 39.73% of the mortgage market share, followed by Stanbic Bank (11.36%), Azania Bank (6.15%), NCBA Bank (5.95%), and NMB Bank (5.60%).

In 2017, BoT licensed Tanzania’s first dedicated mortgage lender, First Housing Finance. The bank is a joint effort by Azania Bank, Armut Limited of Mauritius, India’s Housing Development Finance Corporation, and the International Finance Corporation (IFC) of the World Bank Group.

The number of mortgage lenders further increased to 32 in 2018, and to 34 in 2019. It then returned to 32 banks in Q4 2020 due to the merger of Mwanga Community Bank, Hakika Microfinance Bank, and EFC Microfinance Bank.

Tanzania Banking Sector Market Players

The Tanzanian banking sector embarked on a plan for financial liberalization in the ’90s to sustain the country’s economic growth. This has been accomplished through the mobilization of financial resources as well as by increasing competition in the financial markets and by enhancing the quality and efficiency of credit allocation.

As a result of the liberalization, new merchant banks, commercial banks, bureaus de change, credit bureaus, and other financial institutions have entered the market.

As of August 2021, there are 48 banks operating in Tanzania: 35 commercial banks, 5 village community banks (VICOBAs), 4 microfinance banks, 2 mortgage banks, and 2 development banks.

Ten largest banks- with at least TZS 1 trillion in assets-dominated the market in 2019, accounting for 72.20% of total assets, 72.98% of total loans and 74.50% of total deposits. These banks are CRDB, NMB, NBC, Stanbic, Standard Chartered, Absa, DTB, Exim, Azania, and Citi.

And the top five banks- CRDB, NMB, NBC, Stanbic, and Standard Chartered-accounted for 55.1% and 57.0% of total assets and deposits respectively. The dominance was on account of a large customer base and wide branch network. Meanwhile, locally-owned banks continued to hold more assets compared to foreign-owned banks.

Banks Operating in Tanzania in 2021

Financial Inclusion: Microfinance, Agency Banking, Mobile Money, Credit and Forex Bureaus

Following the financial liberalization in the ’90s to sustain the country’s economic growth, many new lenders including merchant banks, commercial banks, bureaus de change, credit bureaus, and other financial institutions have entered the Tanzanian market.

Consequently, Tanzania has recorded significant growth in the level of financial inclusion in the last decade. According to the Financial Sector Deeping Trust (FSDT), a program aimed at increasing financial inclusion in Tanzania, the percentage of adult Tanzanians who access formal financial services increased from 16% in 2009 to 58% in 2013 and 65% in 2017. And accessibility, measured by the proportion of the population living within five kilometers from where financial services are provided, has grown from 45% to 86% nationally and is at 78% for those living in rural areas. In the same year, however, only 16.7% of adults have or use bank services (9% in 2009).

FSDT’s second National Financial Inclusion Framework (NFIF) 2018-2022 aims at increasing the percent of adult Tanzanians using formal financial services to 75% by 2022. Unlike the previous framework which put more emphasis on accessibility, the current Framework focuses on achieving the financial inclusion vision through the usage of financial products and services, without losing sight of access.

To achieve this, the core enablers identified are conducive infrastructures and enabling legal and regulatory frameworks.

Conducive infrastructure includes verifiable identification, credit reference system and collateral registry, and efficient payments ecosystem thanks to improving digital payment platforms and enabling full interoperability among service providers.

Improved legal and regulatory frameworks should ease business licensing requirements, promote innovations in the financial sector, develop proportional prudential requirements while maintaining an appropriate balance between financial inclusion objectives and other policies, such as financial stability and consumer protection.

Microfinance

Microfinancing in Tanzania started in the ’90s with savings and credit cooperative organizations (SACCOS) and NGOs. A National Microfinance Policy was implemented in 2000 to encourage and support microfinance in the country through better integration and regulation.

The microfinance sector came to serve a large portion of the population who would not have had access to credit and finance otherwise. While this has had a significant impact on the economy, a lack of regulation has left the sector vulnerable to financial irregularities and the target of fraudsters and money launderers.

This led to a revision of the Policy in 2017 and to the creation of the Tanzania Microfinance Act of 2018. The Bill ensures proper market conduct and consumer protection, hence contributing to the promotion of financial inclusion. It regulates licensing and registration of deposit and non-deposit taking microfinance business in 4 tiers: Tier 1: Microfinance Banks; Tier 2: Non- deposit Taking Microfinance Service Providers; Tier 3: Savings and Credit Cooperative Societies; and Tier 4: Community Microfinance Groups.

As of 2021, there are four microfinance banks in Tanzania, a few banks that provide microfinance services, and several non-banking microfinance institutions and service providers.

In addition, Tanzania has several so-called Village Community Banks (VICOBAs) to assist those who do not have possessions and collaterals. Under this structure, poor people, especially those in the rural areas, combine their savings to create a community-based bank. Members can then take out loans to fund micro-enterprises and self-employment initiatives.

Banking Network and Agency Banking

During 2019, the banking sector continued to expand its outreach through the branch network. The number of branches increased to 957 from 878 in 2018.

Most of the branches were located in major cities, namely Dar es Salaam, Arusha, Mwanza, Moshi, and Dodoma. Dar es Salaam had 290 branches which constituted 30.3% of all branches, followed by Arusha with 68 branches (7.1%), Mwanza with 67 (7%), Moshi, with 46 (4.8%), and Dodoma with 41 (4.3%).

In 2013, BoT introduced comprehensive agent banking guidelines that permit licensed banks and financial institutions to appoint retail agents for their banking services. This provides a mechanism through which banks can profitably extend their services to previously unbanked lower-income individuals.

The total deposits through agents reached TZS 18,875.86 billion in 2019-84% more than in 2018-reflecting the increased effectiveness of agent banking in savings mobilization and expansion of bankable population.

Mobile Money

Mobile Money, also known as M-Pesa, was introduced in Tanzania in 2008. The service, provided by mobile network operators (MNOs), allows users to deposit, withdraw, transfer money, pay for goods and services, but also access credit and savings, all with a simple mobile device via SMS.

Already in 2007, BoT through the 2007 Electronic Payment Systems Guideline created new rules for electronic payment schemes allowing non-bank

financial institutions to offer electronic payment schemes and money transfers. Although it did not accommodate mobile money, it opened the doors for MNOs to offer money transfer and payment services.

Since the law did not address licensing of MNOs, operators were required by BoT to apply for Letters of No Objection in conjunction with a bank in order to conduct payment services legally.

Realizing the potential of alternative payment instruments improving access to, and adoption of formal financial services, eventually increasing financial inclusion, BoT issued the first letters of no objection to the first MNO’s launching mobile money in Tanzania in 2008.

As the market has continued to develop more MNO’s launched mobile money services, BoT made concerted efforts to find a legal and regulatory framework that would provide sufficient legal certainty and consistency to support a stable mobile money market, promote financial inclusion, and protect customers.

In 2015, BoT introduced a number of laws to further regulate mobile money and payment systems. These allowed for interoperability between MNOs, for money to be transferred from bank accounts to mobile money accounts, and for banks to give small-scale loans via mobile platforms.

In 2016, Tanzania became the first country in the world to achieve full mobile money interoperability.

Today, Tanzania is one of the most advanced mobile money markets in Sub-Saharan Africa.

By September 2020, Tanzania had 30,586,806 mobile money accounts-via six MNOs-out of 49,143,053 mobile network subscriptions. These accounted for 299,258,504 mobile money transactions for a total value of TZS 11,5 Trillion per month.

Such high mobile network and mobile money penetration have clearly impacted the bank’s network strategy to reach the unbanked population and increase financial inclusion.

Abdulmajid Nsekela CEO & MD of CRDB, Tanzania’s largest bank with a network of 260 branches throughout the country, is clear in that physical presence is no longer a determinant in the adoption of financial services: “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.”

Kevin Wingfield, CEO of Stanbic Bank Tanzania, one of the largest lenders in the country, is of similar views and seeks further cooperation with FinTech. He says that “Mobile technology and finance are intertwined. There is no doubt that the future of finance is digital. Technology lowers the cost of delivering financial services and this allows for much greater access to financial services and financial inclusion. Collaboration and partnerships will be critical between traditional financial services and the emerging Fintech world in order to ensure we all stay relevant to our customers. Technology is also revolutionizing more complex banking products and services which enhances the customer experience but also gives rise to new and emerging risks that need to be managed.”

True to his word, in December 2020 Stanbic introduced a self-registration process dubbed BOFYA-to allow customers to open accounts on the bank’s website by following quick and easy steps.

And financial inclusion is to benefit an additional boost as BoT is developing a Tanzania Instant Payment System (TIPS). This will be a single platform that will connect different payment systems: electronic money, card, mobile and internet banking.

TIPS will be accessible for payments to and from individuals and businesses and will permit payments to mobile phone numbers as well as to bank accounts and it will serve to replace the more costly Tanzania Interbank Settlement System and the East Africa Cross-border Payment Systems.

This will facilitate interoperability of digital financial services amongst payment service providers, reduce the use of cash transactions, enhance effective governance, and promote financial inclusion.

Credit Reference Bureaus

Credit reference bureaus play a critical role in increasing lending activity and access to capital, and in turn, accompanying economic growth by assisting lenders to make faster and more accurate credit decisions.

Tanzania passed the credit bureaus regulation in December 2012 and in 2013 BoT licensed two credit bureaus. These institutions are responsible for collecting, analyzing and providing credit information to different lending stakeholders, thereby facilitating the credit underwriting process.

In its Annual Report 2019/20, BoT explains that stakeholders were sensitized on the importance of submitting data to the credit reference bureaus and use credit reports during the lending process. With this, the credit reference system improved in terms of data submission and quality and the number of non-regulated institutions that shared credit information through credit reference reached 99. The number of credit inquiries also increased by 3.4% to 1,847,379 in 2019/20 compared to 2018/2019.

And in 2019, BoT in collaboration with the International Finance Corporation (IFC), launched a public awareness program for Tanzanians aiming to increase the understanding, awareness of credit reporting in accessing credit.

Forex and Bureaus de Change

In Tanzania, foreign money exchange services were traditionally offered by commercial banks and bureaus de change.

In 2018, BoT conducted a compliance review of the bureaus de change in the country as they were found to be a source of money laundering, tax evasion and poor know your customer (KYC) compliance.

The Review resulted in the closure of all bureaus and a new Foreign Exchange (Bureau De Change) Regulations that came into force on 7 June 2019 and revoked the 2015 Foreign Exchange (Bureau De Change) Regulations.

According to BoT’s Governor Prof. Florens Luoga, the crackdown on foreign exchange bureaus also helped to ease the pressure on the Tanzanian shilling and to stabilize it against major global currencies. “Since the operation was completed, the shilling maintained stability against the US dollar and other major currencies and prices for essential commodities stabilized.”

At the end of June 2020, there were three bureaus de change with 38 branches operating in Tanzania.

Furthermore, BoT issued a circular in August 2020 to all foreign exchange authorized dealers operating in Tanzania, providing directives on foreign exchange operations to foster macroeconomic stability and safeguard the stability of the financial system in Tanzania. As per the circular, banks are prohibited from buying foreign currency from exporters with whom they have no account relationship. As such, the sale of foreign currency by exporters shall be made through banks in which the exporters maintain their accounts.

Also, all foreign exchange dealers are reminded to observe Know Your Customer (KYC) procedures in undertaking foreign exchange transactions, and trading of foreign exchange with international foreign currency brokers who are not licensed in Tanzania is prohibited.

The changes in the forex regulations and the closure of bureaus de change redirected foreign exchange services to the banking sector which saw the profits from foreign exchange dealings up by 70% in Q1 2019. However, earnings from forex fell heavily in Q1 2020 due to the impact of the Covid-19 pandemic on international trade.

Tanzania Banking Sector Consolidation

Lately, the sector has been experiencing increasing consolidation. After a peak of 59 licensed banking institutions operating in Tanzania in 2017, the number has descended to 53 in 2018, 51 in 2019, 49 in 2020, and 47 in 2021.

In 2018, BoT revoked the banking license of five banks on the basis of their undercapitalization: Covenant Bank, Efatha Bank, Njombe Community Bank, Kagera Farmers’ Cooperative Bank, and Meru Community Bank. BoT also took over the administration of Bank M Tanzania due to the bank’s critical liquidity problems and its inability to meet its maturing obligations.

During the same year, Twiga Bancorp merged with TPB Bank retaining the name TPB Bank. But a new bank entered the crowded Tanzania banking market: China Dasheng Bank (CDBL) which was issued a banking business license in November 2018.  

In 2019, the number of banks further decreased with the acquisition of UBL Bank Tanzania by Exim Bank Tanzania, and BoT’s transfer of assets and liabilities of Bank M Tanzania to Azania Bank.

During 2020, the sector experienced further consolidation. In July, BoT licensed Mwanga Hakika Microfinance Bank (MHB) following the merger between Mwanga Community Bank (MCBL), Hakika Microfinance Bank (HK MFB), and EFC Microfinance Bank.

During the same month, NIC Bank Tanzania and the Commercial Bank of Africa (CBA) received regulatory approvals to merge and start operations as NCBA Bank Tanzania. And BoT placed China Commercial Bank Limited (CCB) under statutory administration, transferring all its assets and liabilities to NMB Bank in March 2021.

In March 2021 the National Bank of Malawi plc (NBM) completed the acquisition of a 51% controlling stake in Akiba Commercial Bank. The acquisition is part of the banks’ strategic regional expansion.

In June 2021, the government of Tanzania warranted the merger between two of its controlled banks, TPB Bank and TIB Corporate Bank, a former subsidiary of TIB Development Bank, giving birth to Tanzania Commercial Bank (TCB).

It is plausible to expect that the impact of the Covid-19 pandemic will put additional pressure on the sector and further reduce the number of banks successfully operating in Tanzania.

Wingfield of Stanbic Bank commented on that: “I think given the current Covid-19 crises, [consolidation] is going to be accentuated, as those organizations that act swiftly and adapt to ensure they remain relevant to their customers will grow and those that are slower or unable to adapt will disappear or be taken over. As a member of the Standard Bank Group, we are part of the largest bank on the African continent that has a presence in 21 countries on the continent, a strong balance sheet. We have built a strong brand in Tanzania and are well-positioned to deliver our local and Group capabilities to meet our customer needs and fulfill our Group vision of Africa is our home.”

Tanzania Banking Sector Outlook: Covid-19 and Economic Growth

Covid-19 in Tanzania

In May 2020, soon after the appearance of the Covid pandemic in Tanzania, BoT introduced various policies to cushion the economy from the adverse effect of Covid-19, safeguarding the financial sector stability and facilitating the financial intermediation process.

The policy measures approved included: lowering the Statutory Minimum Reserves (SMR) requirements from 7% to 6% to provide additional liquidity to banks, reducing the discount rate from 7% to 5% to permit banks to borrow from the BoT at a lower cost; reducing haircuts on government securities from 10% to 5% for Treasury bills, and from 40% to 20% for Treasury bonds, to increase the ability of banks to borrow from the BoT with less collateral; increasing mobile money operators daily transaction limits to costumers, from TZS 3 million to TZS 5 million and daily balance from TZS 5 million to TZS 10 million, to encourage digital transactions thus reduce congestion in banking premises; and promoting loan restructuring by providing regulatory flexibility to banks.

From July to December 2020, BoT continued to implement accommodative monetary policy, amidst a low inflationary environment, to cushion the economy from the adverse impact of Covid-19 and facilitate the provision of private sector credit.

This was implemented using a wide range of instruments of injecting liquidity in the economy, which included reverse repo, purchase of foreign exchange from the interbank foreign exchange market, and inward foreign exchange swaps with banks. In addition, BoT granted standing credit facilities to banks to smoothen short-term liquidity fluctuations.

Tanzania has also enjoyed emergency financial support from both the International Monetary Fund (IMF) and African Development Bank (AfDB) to better cope with the pandemic. And the country is one of the few to experience positive economic growth in 2020 and 2021.

And some major commercial banks in Tanzania have actually reported an increase in net profits in 2020 while introducing measures to cope with the impact of Covid-19.

For example, Stanbic Bank Tanzania introduced debt reliefs for its clients by providing them with a 3-6-months payment holiday. Additionally, the bank continues to provide financial advisory to its clients to ensure that they have an effective business continuity strategy.

Wingfield shares his view on the issue and his bank’s strategy to cope with it: “The current environment is challenging and no one knows exactly how long this pandemic will last and how it will impact our environment into the future. We will continue to focus on those sectors that are a priority for growth and development in Tanzania. At present, the likes of tourism, transport, oil and gas, local and cross-border traders are all finding the environment challenging. However, there are some sectors that are thriving like medical and consumer, which present opportunities. As a leading and responsible corporate citizen in the market we also have an obligation to do what we can to support the efforts of the Government and other organizations to fight the pandemic and support the economy through this time.”

Tanzania Economic Growth in 2020-2021

In its latest Monetary Policy Statement of February 2021, BoT indicates that the Tanzanian economy performed satisfactorily amid the negative impact of Covid-19 on some sectors of the economy.

Growth averaged 4.7% in the first three quarters of 2020, compared to 7.3% in the corresponding period of 2019 and 6.9% in 2018, mostly driven by construction, agriculture, transport, and mining and quarrying.

The activities benefited from the Government decision of not imposing a nationwide lockdown of the economy because of the Covid -19, as well as fiscal and monetary policies implemented to cushion the economy from the adverse impact of the pandemic.

Meanwhile, the banking sector performance was generally satisfactory. It remained stable, resilient, adequately capitalized and profitable, with satisfactory level of liquidity. The quality of assets of banks improved, as the ratio of non-performing loans to gross loans declined to 9.3% in December 2020 from 10.8% in June 2020.

Looking ahead, Bot’s current monetary policies are focussed on easing liquidity conditions to support the growth of the economy during the Covid-19 pandemic. The growth of the economy is projected at 5.5% and 6.0% in 2020 and 2021, respectively. The growth projection in 2021 is slightly higher than the World Bank projection of 5.5%. And inflation rates should remain relatively low, between 3.0% and 5.0% in 2021.

With this is mind, the Tanzanian banking sector is expected to remain safe and sound in line with ongoing policy, prudential and regulatory measures undertaken by BoT towards improving business environment and efficiency in financial services delivery. Additionally, BoT continues to monitor the quality of banks’ assets with a view of reducing non-performing loans to the desired level of 5%.

And the largest banks are expected to continue to support Tanzania’s economic growth and financial inclusion.

And Wingfield confirms that Stanbic “Looks forward to playing an even greater role in supporting the growth and economic success of the country. We have access to proven expertise in Tanzania and from the Group to support all the key sectors that are and will drive growth in Tanzania. At present the likes of tourism, transport, oil and gas, local and cross border traders are all finding the environment challenging. However, there are some sectors that are thriving like medical and consumer, which present opportunities. As a leading and responsible corporate citizen in the market we also have an obligation to do what we can to support the efforts of Government and other organizations to fight the pandemic and support the economy through this time.”

Sources: Bank of Tanzania (BoT), Financial Sector Deeping Trust (FSDT), Global System for Mobile Communications Association (GSMA), Centre for Affordable Housing Finance Africa (CAHF).