Why banks’ profitability has soared in 9 months

Dar es Salaam. The profitability of the banking sector is now rebounding with the profitability of top banks expanding by about Sh50 billion or 21 per cent in the first three quarters of 2019.

The 12 most profitable banks, which also control over 70 per cent of the industry assets, generated combined net profits of Sh297.96 billion in the nine months, up from Sh245.805 billion recorded in the similar period of 2018, according to the banks’ financial statements analysed by The Citizen.

The banks include CRDB, NMB, National Bank of Commerce, Standard Chartered, Exim, Stanbic, Diamond Trust Bank, Azania, Barclays, KCB Bank, TPB and I&M.

The current nine-month cumulative profit is higher than the sector’s profitability of 2017 which was Sh208 billion – the lowest in the last five years.

This suggests that the sector is now recovering with revenue from non-interest streams growing at a faster pace.

This is partly due to some shifts influenced by government policies and technological innovations.

Interest income however remained the highest income stream in all banks.

The non-interest income, which is mainly powered by foreign currency dealings and fees and commissions, increased to Sh618.69 billion for the 12 lenders in the period under review from Sh562.19 billion during a similar period last year.

Late last year, the government cracked down bureau de change operators over allegations of money laundering and tax evasions hence shifting the business to commercial banks which are now earning handsomely.

Many banks have also integrated their services with digital platforms which they charge fees. Transferring money from a bank account to mobile money wallet or checking balance using mobile phone is one of the chargeable services by the commercial banks.

Some of the electronic services include online payment, agency banking as well as mobile banking.

“Our digital transformation agenda continued to deliver impressive results, which have contributed to our bottom line,” said National Bank of Commerce managing director Theobald Sabi in a statement last week.

NBC nine-month profit increased to Sh17.4 billion compared to Sh2.4 billion recorded previously. The bank’s mobile banking transactions grew by 50 per cent compared to last year.

“Our impressive performance for the last nine months is mainly attributed to our ongoing cost savings and efficiency drive, increased fee income from transactional activities and improved quality of the loan portfolio,” he said.

The 12 banks were profitable but profits of four banks (NMB, Barclays, DTB and I&M) had slowed. The eight others exceeded what they generated as profits last year.

CRDB Bank which generated the highest profit of Sh92.2 billion – up from Sh52.3 billion - attributes the performance to responsible lending that led to improved loan quality and loan repayments, growth of its agency business and Trade Finance through guarantees.

“Our focus on operational efficiency and sales optimization is paying off. We have embarked on the digitalization journey while adhering to good governance, reduce operational costs, and improve our service delivery. As you can see, our earnings from credit books, trade finance, and foreign currency dealings have significantly increased, showing our commitment to serving each segment in the market,” said the bank’s managing director Abdulmajid Nsekela.

Economic experts predict the industry will continue recovering after passing through “a transitional period that experienced tightening of the economy.”

When President John Magufuli came into office in 2015, he tightened public expenditure and cracked down ghost workers and corruption practices.

“As a result, the level of non-performing loans drastically increased. Banks started cleaning their balance sheets by writing off the bad debts and at the same time came with tight conditions to new borrowers,” says Prof Delphin Rwegasira of the University of Dar es Salaam’s Economics Department.

According to him, the banks have a great chance to do better going forward as economic growth promises good future.

Tanzania gross domestic product (GDP) grew by 7.2 per cent in the second quarter of 2019, according to the National Bureau of Statistics.