Tanzania Banking Sector Report

tanzania banking

The Tanzania banking sector embarked on a plan for financial liberalization in the 90’s in order 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 market and by enhancing the quality and efficiency of credit allocation.

As a result of the liberalization, the banking sector in Tanzania has been booming, particularly over the last few years and new merchant banks, commercial banks, bureaus de change, credit bureaus and other financial institutions have entered the market.

As of March 2015 there are 56 licensed banks and other financial institutions in Tanzania, versus 38 in 2009.

Table Of Contents:

Tanzania Banking Sector Performances

Tanzania Banking Sector Market Players

Financial Inclusion In Tanzania: Mobile Money, Agency Banking And Credit Bureaus

Tanzania Banking Sector Outlook And Opportunities

Tanzania Banking Sector Performances

According to the latest available Banking Report of 2013 by the Bank Of Tanzania (BOT), total assets of the banking sector reached TZS 19,522.92 billion in 2013, a growth of 14.95% from TZS 16,984.49 billion in 2012.

Total deposits grew by 13.46% from 2012 while total capital increased by 19.41%.

As at 31st December 2013, total profit before tax of TZS 460.58 billion, an increase of 13.19% from TZS 406.90 billion recorded in the previous year.

Return on Assets and Return on Equity were 2.55% and 13.08% compared to 2.58% and 13.88 %recorded in 2012, respectively.

These performances were supported by stable macroeconomic environment with sustained GDP growth averaging 7% and average annual headline inflation declining to 6.0% in December 2013 (4% in January 2015) from 12.4% recorded in December 2012.

Tanzania Banking Sector Total Assets

AssetsDec 2009Dec 2010Dec 2011Dec 2012Dec 2013
Total Assets (TZS Billions)10,03812,57014,53716,98419,523
Total Assets (% Change)18.9125.2215.6516.8414.95
Source: Bank Of Tanzania

Tanzania Banking Sector Assets Composition

During 2013 major components of the banking sector assets were Cash, Balance with Banks and Items for Clearing (21.92&), Investment in Debt Securities (18.64%) and Loans Advances and Overdrafts (50.78%).

Tanzanian banks loan portfolio was well diversified in various sub-sectors of the economy implying minimal credit risk arising from sectorial concentration of credit.

Distribution of the loan portfolio among sectors of the economy was as follows: Personal loans (16.87%), Trade (20.98%), Manufacturing (11.24%), Agriculture, Fishing, Hunting and Forestry (9.85%), Building, Construction and Real Estate (9.65%), Transport and Communication (7.05%) and other sectors (24.36%).

Lending to private sector to GDP was 21.86%, which was above 18.26% achieved in 2012.

Tanzania Baking Sector Capital

The banking sector’s Total Capital recorded an increase of 19.41% in 2013 reaching TZS 2,546.97 billion compared to TZS 2,131.47 billion recorded in the year 2012.

The growth was attributed to the entrance of new banking institutions, retention of profits and capital injection by banking institutions.

The banking sector remained adequately capitalized during the year 2013 with average ratios of Core Capital and Total Capital to Total Risk Weighted Assets and Off Balance Sheet Exposures of 17.47% and 18.06% which were slightly above 16.86% and 17.44% recorded in December 2012.

Both of these ratios are well above the required minimum legal capital adequacy ratios for individual banking institution of 10.00% and 12.00% for core and total capital, respectively.

Tanzania Banking Sector Market Players

Following liberalization of economic policy and strong and stable economic development with GDP growth of 7% per year since 2001, well above the average for sub-Saharan Africa, the vibrant Tanzania banking sector is consistently attracting foreign financial institutions to enter the market.

The latest entrants in the Tanzanian baking sector since 2009 have been: Mkombozi Commercial Bank (DSE: MKCB), a local commercial bank that focuses on serving the lower social economic classes and SMEs, in 2009; Ecobank, part of Ecobank Transitional (LG: ETI), the largest pan-African banking group with presence in 36 African countries, in 2010; First National Bank (FNB), one of South Africa’s “big four” banks and part of FirstRand Group (JSE: FRS), in 2011; Equity Bank, a commercial bank member of the Kenyan Equity Bank Group, in 2012; United Bank Limited (KSE:UBL), one of the largest commercial banks in Pakistan, in 2013; Maendeleo Bank (DSE:MBP), a regional bank focused on unbanked financially disadvantaged people and SMEs, in 2013.

With a total of 56 licensed banks and financial institutions, the market is characterized by a few big players and several small banks.

Tanzanian Banks By Type/Size

LargeMediumRegional & SmallNon Banking Financial Institutions (NBFI)
CitibankAkibaAmanaTanzania Postal bank (TPB)
EXIMBank MEfatha
National Bank Of Commerce (NBC)Bank Of Africa (BOA)Kagera
Standard CharteredBank Of Baroda (BOB)Kilimanjaro Cooperative Bank (KCBL)
StanbicBank Of India (BOI)Maendeleo
Commercial Bank Of Africa (CBA)Mbinga
Diamond Trust Bank (DTB)MKOMBOZI (DSE:MKCB)
First National Bank (FNB)Njombe
HabibTanzania Cooperative Bank (TCB)
I&MTanzania Womens Bank (TWB)
International Commercial Bank (ICB)UBL
Kenya Commercial Bank (KCB)Uchumi
Peoples’ Bank of Zanzibar (PBZ)
United Bank for Africa (UBA)
Source: Source: EY Tanzania Eastern Africa Banking Sector review

For the period ending 31st December 2013, the largest four banks in terms of total assets held 50.71% of the total assets of the banking sector, 47.26% of total capital, 53.71% of total deposits and 48.69% of total loans advances and overdrafts.

On the other hand, local banking institutions’ share of the total banking sector’s assets was 52.20%, slightly higher than that of foreign banking institutions at 47.80%.

Large banks dominate in term of total assets with 69% in 2013.

Medium-size banks account for 25%, non-banking financial institutions 4% and regional and small banks 2%.

Tanzanian Banks Total Assets

TZS Millions20092010201120122013
Regional and Small119,386184,095243,716311,561454,886
Total Banking Sector9,817,27112,364,75714,281,73816,644,78618,935,453
Source: EY Tanzania Eastern Africa Banking Sector review

The multinational banks are mainly dedicated to medium and large corporation banking and to donor intermediation business.

International banks, which benefit from an African regional network, are positioned to mediate the business flows from their respective countries.

Regional banks also service small to medium and retail banking business, but on a larger national scale.

Local private banks service small to medium size business and retail banking.

Tanzania Banking Network

As of 31st December 2013, the banking institutions in Tanzania had an overall branch network of 642, increasing from 556 reported in the previous year.

Most of the branches were located in major cities of Dar-es-Salaam, Mwanza, Arusha, Mbeya and Kilimanjaro.

Dar es Salaam had 234 branches which constituted 36.45 percent of all branches, followed by Arusha, 50 branches (7.79%); Mwanza, 44 branches (6.85%); Mbeya, 34 branches (5.30%); and Kilimanjaro 30 branches (4.67%).

While local banks are more diffused within the national territory, with larger and more capillary branch networks, foreign banks have only a few branches based in Dar es Salaam and other major cities.

Foreign banks tend to operate as subsidiaries of large groups, such as Ecobank, and Citigroup, using strategies oriented to the international market.

Tanzania Banking Sector Competition And Innovation

Increasing competition has lead to increasing innovation and greatly influencing the way financial services are delivered, and impacting the traditional expansion strategy by Tanzanian banks based on increasing branches network thought the country.

According to Edwina Agnellus Lupembe, Managing Director of Mkombozi Commercial Bank (DSE:MKCB), “The current multitude of banks and financial institutions have brought stiff competition in the industry, introduced many products and services to the diverse users of financial services. This move is revolutionizing the whole practice of the Tanzanian economy which depended on the cash economy to next generation of non-cash economy.”

Mr. Joseph Carasso, Managing Director of CITI Bank Tanzania puts it clear: “the [Tanzanian banking] industry is changing a lot. Mobile Telecommunications, for example, has managed to change their business model, deliberately or not, making lower revenue generating clients profitable through deployment of technology and adoption of business strategies typical of fast moving consumer goods industries.”

Mr Kihara Maina, Managing Director of Barclays Bank Tanzania adds on that: “For Barclays, this shift has demanded that we be more innovative, not only with the types of products and services that we introduce, but also in considering how we target our chosen segments to increase usage and penetration.”

Financial Inclusion In Tanzania: Mobile Money, Agency Banking And Credit Bureaus

Despite notable performance in the banking sector, access to financial services by most bankable population is still on the lower side.

To address the challenges of financial inclusion, Bank of Tanzania in collaboration with other stakeholders developed a framework for financial inclusion in Tanzania.

At the end of 2013 Tanzania launched its National Financial Inclusion Framework, to reduced economic vulnerability for individuals and households, poverty alleviation, and improved quality of life for all people in Tanzania, with the goal of expanding access to formal financial services to 50% of adult Tanzanians by 2016.

Such financial services include savings, credit, payments, insurance, and more advanced financial services such as pensions, securities and government transfers through formal mechanisms.

The 50% target is in line with the international commitment that the Bank of Tanzania, on behalf of financial sector stakeholders, made in Riviera Maya, Mexico in 2011 under Alliance for Financial Inclusion Global Initiative known as “the Maya Declarations”.

In particular the objectives include 50% bank account ownership, 50% regular usage, 25% of adults with at least two weeks’ worth of income in formal savings accounts, and 25% of adults with electronic personal financial records.

The Framework is being implemented over three years from 2014 to 2016 when all the relevant stakeholders are developing coordinated initiatives between the public and private sectors.

Tanzania Mobile Money And Internet Banking

The Financial Inclusion Survey of Tanzania, conducted between September 2013 and March 2014 by indicates that only 11% of the Tanzanian adult population has a formal bank account registered in their name.

The figure is lower in rural areas where only eight percent have access, compared with 19% in urban areas.

At the same time 67% own a mobile phone (86% own a SIM card).

Since launching in Tanzania in 2008, mobile money transfer technology has helped to expand access to financial services to almost half the population.

By September 2013 mobile money has enabled nearly 43% of the adult population (9.8 million) to have active mobile payment accounts, placing Tanzania amongst the top countries in the world for mobile money services usage.

As of 31st December 2013, the value of mobile (SMS) banking transactions increased to TZS 587.06 million compared to TZS 302.14 million recorded in the previous year being an increase of 94.36%.

The value of internet banking transactions also increased to TZS 22,724.86 million from TZS 17,746.91 million reported in 2012, recording an annual
growth rate of 28.05%.

The increase was attributed to increase in number of banking institutions offering mobile (SMS) and internet banking to 15 and 16 from 9 and 11 recorded in the previous year respectively.

Commenting of mobile banking, Mr. Joseph Carasso, Managing Director of CITI Bank Tanzania explains: “Mobile banking is a very fascinating area, and one that Citi has taken very seriously from the beginning. In East Africa, this service has an important social role, enabling financial inclusion and allowing lower income and remotely located individuals access to payment mechanisms at low cost. So the potential, and importance, are high. [However] a bank is more than just a payment mechanism. There are areas like investment banking and trade finance, to name a few, which have little to no common ground with mobile banking as done today through telecom companies.”

Tanzania Agency Banking

The Bank of Tanzania (BOT) introduced in 2013 comprehensive agent banking guidelines that permit for the first time licensed banks and financial institutions to appoint retail agents as a delivery channel for their banking services.

The introduction of agent banking provides a mechanism though which banks can profitably extend their services to previously unbanked lower income individuals.

Five banks in Tanzania are now offering agency banking and the number of agents has nearly doubled from September 2013 to April 2014.

As of 31st December 2013, 591 agents were approved by the Bank and became operational, with most of the agents concentrated in major cities.

2013 and for the first year in operation, total deposits and withdrawals in agent banking operations reached TZS 28,371.33 million and 4,137.70 million respectively.

This is expected unlock the potential of the lower income markets and facilitate the partition of a significant proportion of the population in the formal economy.

Tanzania 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 lender to make faster and more accurate credit decision.

Tanzania passed credit bureaus regulation in December 2012 and as a result in 2013 two credit bureaus were licensed by the Bank Of Tanzania (BOT): Credit Info and Dun & Bradstreet.

Mr. Davith Kahwa, Executive Director of Creditinfo Tanzania explains why the group, currently operating in 14 countries globally, has decided to enter the Tanzanian market: “Our entrance to Tanzania was response to supporting government initiatives to strengthen the country’s financial infrastructure, which is a key pillar to support economic and financial sector growth and stability, promote financial inclusion, and reduce the cost of borrowing to the consumer.”

The welcoming from Tanzanian banks has been very warm, Kahwa explains: “We have been in operation since June 2013, and the feedback from our customers has been excellent. We have had testimonies from clients who have integrated our system to their credit assessment processes saying that our system have transformed and enhanced their credit risk management processes. We are providing an extra dimension to their credit assessment process, details that previously the banks may have been unaware of.”

According to a survey sent to Tanzanian banks in relation to the use credit bureaus in assessing loans application, 50% of the banks indicated they were using such service while 44% were planning to do so in the near future.

When asked on the usefulness of the information provided by credit bureaus banks indicated that this was useful of very useful.

Particularly, when asked whether the use of credit bureaus will lead to more loans, 58% of the bank agreed with it, while 94% indicated the information will reduce the amount of non-performing loans.

Tanzania Banking Sector Outlook And Opportunities

The Tanzanian banking sector outlook remains positive, thanks to continued strong economic growth, estimated by the World Bank at 7% in 2015.

As explained by Mr. Enoch Osei–Safo, Managing Director of Ecobank Tanzania “the banking and finance sector is growing in leaps and bounds in Tanzania. […] Tanzania as an emerging market attracting high volumes of both local and foreign investment is greatly in need of this synergized service offering and that is the need that Ecobank is responding to.”

Tanzania is also playing an increasing role as a trade hub in the region, at the cross between with Asia and the Middle East and six landlocked neighboring countries.

“With bilateral trade between Tanzania and China hitting USD 2.5 billion [in 2012], it is little wonder that Tanzania was the first African country to be visited by the Chinese President, Xi Jinping, since he assumed the presidency. As trade between China and Tanzania is projected to grow at more than 15% annually, it is expedient for us to have a dedicated China desk in Tanzania, similar to what we have been doing in other African countries” says Mr. Enoch Osei–Safo.

Tanzania strong and sustained growth seems to hold the potential for the country to become among the top African markets for international banks.

As explained by Mr. Joseph Carasso, Managing Director of CITI Bank Tanzania, among the earliest foreign banks to enter the country in 1995 “Right now the Tanzanian economy holds a lot of potential – with its GDP growth rate averaging 7% per annum, stable and peaceful environment, strategic geographic location and relatively large population – and I believe the country has many, if not all, of the elements to become one of our largest businesses in Africa.”

Ample room for additional financial inclusion and mobile money services are also boosting Tanzania’s banking sectors, as explained by Prof. Benno Ndulu, Governor of Bank of Tanzania: “Access [to financial services] can’t really be achieved purely by opening brick and mortar bank branches. It has to be on the basis of technology.[…] Out of the 12 million Tanzanian adults who actively use mobile money services, about half of them actually use it to save. So that provides a bridge. That’s really the opportunity for banks to tap into. Those six million savers become a potential market and that’s going to revolutionise financial access.”

Access to finance for the SMEs is also an area of opportunity, as inability for Tanzanian SMEs to access financing remains one of the most frequently cited constraints to growth.

More than 95% of businesses in Tanzania are SMEs, contributing about 35% of the Tanzania’s GDP.

Current high banks’ interest rates remain a barrier to SMEs financing for growth.

For this two government-owned development banks, Tanzania Agriculture Development Bank (TADB) and TIB Development Bank, support SMEs that focus on agriculture and key projects by allowing them to access finance at a lower interest rates.

On the private sectors side, the SME Impact Fund was launched in 2014 to provide loans to Tanzanian SMEs in the agricultural business value chains.

In addition, credit reference bureaus are also expected to give the Tanzanian banking sector a news momentum.

The industry expects greater loans to be granted and will assist banks in reducing the number of non-performing will be reduced, enabling greater economic activity and stimulating GDP growth.

In order to promote the entry of large banks and consolidation of small banking institutions Tanzania Central Bank has introduced in 2012 new minimum capital requirements for Tanzanian banks: TZS 15 billion from TZS 5 billion for commercial banks and TZS 2 billion from TZS 250 million from community banks.

Compliance deadline are set in 2015 for commercial banks and 2017 for community banks.

In efforts to achieve oversight of the entire financial system, BOT spearheaded the process of establishment of the Tanzania Financial Stability Forum (TFSF) which came into effect in March 2013.

The Forum provides a platform for consultation, exchange of information and policymaking on financial stability, broadening the scope of oversight from
purely micro-prudential focusing on individual institutions in respective sectors to macro prudential oversight geared towards identification and mitigation of
systemic risks.

All in all, the Tanzanian banking sector is poised for additional growth with abundant opportunities for banks and other lenders.

As Marcel Hanen, Citi bank Industry Head for Corporate Banking, EMEA Power & Utilities says: “Tanzania is a hugely interesting market with great opportunities.”