Banking industry expands despite Covid-19 impact

Dar es Salaam. The banking industry in Tanzania continued to grow last year, with key indicators showing positive trends despite the outbreak of Covid-19 that disrupted economic activities across the world.

While Sub-Sahara Africa economy went into recession in 2020, Tanzania’s gross domestic product (GDP) grew by 4.8 percent. However, that was lower that 7.0 percent the East African nation enjoyed in 2019 and over the last decade.

A report by brokerage firm Tanzania Securities indicates that the banking industry had grown in profitability, lending to the private sector, assets, as well as customer deposits. The report also showed improved quality of the assets with the level of non-performing loans (NPLs) or bad loans declining from 8.04 percent in 2019 to 7.73 percent in 2020.

The total banking industry assets grew by 5.54 percent to Sh34.21 trillion while the total profit after tax increased to Sh414.74 billion from Sh351.11 billion in 2019.

Loan book also grew by 9.17 percent to Sh17.97 trillion, the report stated.

“We anticipate growth in lending during the year 2021 thanks to government policies on fiscal and monetary policies to stimulate business activities,” the authors of the report stated, noting that sectors such as manufacturing, agriculture and personal loans will endorse the growth of the banking industry. “It is also expected that the bank’s assets will be composed of quality assets thanks to improved business activities which will reduce the NPL ratio,” the report added.

Recently, the Bank of Tanzania introduced some measures that were expected to stimulate credit provision to the private sector.

The policy measures which include creation of Sh1 trillion special loans fund for banks and other financial institutions to access money, laid a solid framework to increased liquidity and reduce cost of borrowing.

The central bank also removed the 18-month business experience requirement for one to be registered for agent banking businesses, making the National ID Card as the only requirement.

That is expected to contribute to increasing in loanable funds to banks through deposit mobilization.

Growing assets

Tanzania is home to over 40 banks but the industry is dominated by nine large lenders which account for 75 percent of the assets.

The medium banks control about 16.72 percent and small banks control about 4.96 percent, according to the report.

NMB Bank was the market leader with a total of Sh7.09 trillion in assets, followed by CRDB Bank, with Sh6.94 trillion.

The two top lenders make up a total of Sh14.03 trillion assets and control about 41 percent of the total banking sector assets.

Customer deposits

In 2020, the banking sector’s deposits grew by five percent to Sh23.44 trillion but this was largely contributed by large banks. The report indicates that customer deposits of the large banks grew by 7.82 percent to Sh18 trillion while other segments recorded a decline in their deposits. Medium banks declined their deposits to Sh3.9 trillion from Sh4 trillion previously and small banks declined to Sh871 billion from Sh881 billion.

‘Good times ahead’

Speaking about the positive trend in the banking industry, experts are confident about the future.

“This was due to the fact that the government took concrete steps to control the effects of Covid-19 by allowing economic activities to continue by rejecting full lockdowns,” said National Bank of Commerce (NBC) managing director Theobald Sabi. “Covid-19 affected much of the tourism industry but other sectors of the economy such as the construction of railway infrastructure, roads, bridges, port expansion, agriculture, transportation, health and water continued to grow. Universities and schools were also not closed for a long period. So, banks continued to do business by lending and collecting deposits in these sectors,” he said.

“We expect the banking sector to continue to grow further this year. This is due to the dramatic changes that the government has taken in improving and relaxing the conditions for doing business. The government has continued to work on all the proposals in the ‘blue print’. The central bank has amended banking regulations and provided significant relief to stimulate credit growth for the private sector,” he added.

Prof Honest Ngowi of Mzumbe University was surprised by the growth which, he said, was contrary to expectations.

According to him, the measures taken by the central bank and some innovations by the banks themselves were some of the factors contributed to the protection of the industry from the effect of Covid-19.

“The ongoing recovery in the economy is good news for the banking sector. The rolling out of vaccination is also building hopes,” said Prof Ngowi. “I see good times ahead,” he added.

Tanzania Commercial Bank (TCB) managing director Sabasaba Moshingi said he expected more growth in the industry this year.

“What has helped our country not to suffer from the effect of Covid-19 is the decision taken by the government not to introduce full lockdowns,” he said.