Credit expansion hits record high as banks push deposits to the edge

Meanwhile, the loan-to-deposit ratio (LDR) rose to 97.4 percent, as banks deployed almost all available deposits into lending.

Total deposits stood at Sh50.32 trillion by September, up from Sh45.94 trillion six months earlier — signaling continued confidence among depositors but also underscoring how tightly balanced liquidity conditions have become.

In its Monetary Policy Committee statement last month, the central bank affirmed the sector "remained stable and resilient, with adequate liquidity, strong capital and profitability."

 Non-performing loans fell to 3.3 percent in August 2025, comfortably below the 5 percent tolerance threshold, signaling credit quality amid aggressive expansion.

The BoT's Monthly Economic Review for September 2025 noted lending and deposit interest rates "exhibited general stability, albeit with minor fluctuations."

The average lending rate ticked up to 15.18 percent from 15.07 percent the prior month, reflecting cautious pricing amid demand.

Loans to other non-financial corporations — covering manufacturing, trade, and services — climbed to Sh20.09 trillion by September, from Sh18.43 trillion in March.

Credit to households and SMEs (classified as other resident sectors) rose to Sh19.34 trillion, up from Sh17.21 trillion.

Lending to the central government remained significant at Sh2.33 trillion, while banks’ holdings of securities increased to Sh8.72 trillion, highlighting continued appetite for Treasury instruments.

BoT’s governor, Mr Emmanuel Tutuba, offered a structural explanation of how banks are sustaining such high lending levels.

“Commercial banks in Tanzania have three main sources of funds,” he said.

“The first is through the central bank, the second through mobilization of deposits, and the third is borrowing — both domestically and internationally — using various instruments such as corporate bonds.”

 He cited examples of several Tanzanian banks that have successfully tapped the market through such products.

“We’ve seen institutions like CRDB issuing infrastructure bonds, and others like NMB and TCB doing the same. These have performed very well, allowing banks to diversify their funding sources,” he said.

Mr Tutuba also highlighted the growing practice of loan syndication among local and international banks.

“Syndication works like this — when a bank receives a large loan request that exceeds its capacity, it partners with another bank or a group of banks to share the risk and agree on interest rate arrangements,” he explained.

“This collaboration ensures that financing continues to flow even when individual banks face liquidity constraints.”

Financial analysts say the high LDR signals both strong market demand and tightening liquidity buffers. Ernst & Young Tanzania Country Managing Partner, Mr Joseph Sheffu, said: “What this essentially means is that banks are lending very aggressively against the deposits they hold”.

“They are clearly in a phase of profit maximisation, as reflected by the record lending levels we’ve seen so far,” he said.

However, Mr Sheffu cautioned that this growth comes with liquidity management challenges.

“Yes, there are risks, but they’re somewhat contained because a large portion of lending is directed toward the government through Treasury securities.

When liquidity becomes tight, banks can offload some of these assets — though often at a discount — which may slightly affect profitability,” he said.

Banks remain confident

CRDB Bank Group chief executive officer, Mr Abdulmajid Nsekela, says the growth is broad-based — fueled by demand across key sectors of the economy.

“CRDB’s lending growth is broad-based, driven by strong market demand across key sectors of the economy. Notable contributions come from agriculture and its value chain, trade, manufacturing, and construction,” he said.

He said the bank experienced growth across major lending segments, including corporate, consumer, and SMEs, reflecting robust credit growth in line with overall economic activity.

“The loan book has expanded with a balanced mix of corporate, retail, and SME lending, supported by demand from the private sector and government-related projects where applicable,” he said.

Despite the sector’s high loan-to-deposit ratio, Mr Nsekela insisted that CRDB remains well-positioned, and the lending-to-deposit ratio does not, on its own, indicate an immediate liquidity strain.

 “Our funding mix remains solid, with deposits financing a substantial portion of balance-sheet growth (roughly 74 percent of growth funded from deposits) and a strong year-over-year increase in deposits, which rose nearly 37 percent year-on-year,” he said.

He added that savings and demand deposits (CASA) continue to provide a stable and low-cost funding base. “Our liquidity ratio stood at 27 percent at the end of the quarter, comfortably above the regulatory minimum of 20 percent,” he said.

“While a high LDR warrants ongoing monitoring and prudent liquidity management, current indicators suggest the bank remains liquidity-adequate.

We will continue to monitor deposit trends, diversify funding sources, and adjust asset growth if funding conditions tighten,” he said.