Dar es Salaam. Middle-level commercial banks are increasingly taking a cautious approach to lending as they seek to raise profits while reducing Non-Performing Loans (NPLs) - and to align with the regulator’s requirements.
A close look at recently-released financial statements for 13 commercial banks which have assets of between Sh100 billion and Sh900 billion indicates that there has been an improvement in performance across several parameters.
Banks are cutting levels of NPLs while profitability is on the rise, fueled by both the funded and non-funded income streams as the economy gets on the smooth recovery path from the Covid-19 bruises.
The list includes five lenders that have assets of more than Sh500 billion, including KCB Bank, Equity, Absa, Bank of Africa (BoA) and I&M. According to their financial statements for the first nine months of the current calendar year, most of these banks registered good profits, with KCB being in the lead with a net profit of Sh11.15 billion cumulatively. Absa came second with a cumulative net profit of Sh9.43 billion.
The list also has NCBA, Mkombozi Bank, Maendeleo Bank, Amana Bank, Ecobank, First National Bank, DCB Commercial Bank and Bank of Baroda.
The 13 lenders jointly extended loans to the tune of Sh2.92 trillion which was a slight increase of about Sh100 billion compared to Sh2.85 trillion that they jointly lent in 2020.
However, the banks remained resilient as they were able to cut down the size of NPLs.
According to the statements, the banks’ total NPL volume went down to Sh392.4 billion during the period, being a slight improvement from Sh395.69 billion that was recorded during a similar period in 2020.
Though the improvement might seem slight, it is also a sail in the right direction if a January circular by the Bank of Tanzania (BoT) is to out into consideration.
In its circular, the BoT said commercial banks and financial institutions must maintain their costs to income ratio of not more than 55 percent while Non-Performing Loans (NPLs) must be contained to not more than five percent of total gross loans.
In line with the circular, some lenders in this category managed to reduce their NPLs well below the regulatory level during the third quarter of 2021. Bank of Baroda reported NPL of two percent while KCB Tanzania reported it at 3.04 percent.
Speaking to The Citizen, KCB Tanzania managing director Mr Cosmas Kimario, said the improvement was a result of public education on responsible borrowing.
“Before we lend to any of our customers we make sure that they are well informed and ready. We have also created an environment where we understand our customers and through seminars and workshops, we do spread awareness on responsible borrowing,” said Kimario.
He said the bank has implemented effective cost control mechanisms, boost its digital services network as well as support efficiency of its human resource.
A number of lenders - including Equity Bank, First National Bank, Amana Bank and Ecobank, Mkombozi Bank and I&M Bank - also managed to cut their NPL levels.
NPLs for Maendeleo and Absa remained the same as they maintained their NPL ratios.
Overall, the sector remained resilient to internal and external shocks and continued to grow in terms of deposits and assets, supported by favourable macroeconomic environment, regulatory and supervisory measures.