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Tanzania Banking Sector Report – 2021 Analysis Update

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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.

First Housing Finance Tanzania

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.

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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%).

Tanzania banking sector earnings 2019

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.

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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.

Tanzania banking sector asset composition 2019

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.

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Tanzania Banks Loan Portfolio 2019

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.

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