by Dr Hildebrand Shayo
Banking sector projected to continue supporting the Tanzanian economy in 2025
The performance assessment drawn here examines the financial performance and overall positions of 41 banking institutions in Tanzania for 2024, highlighting their role in supporting economic activities. The evaluation uses published financial statements mandated by the Bank of Tanzania, sourced from the respective institutions’ audited financial statements. Only two major banks will be used as cases to illustrate performance.
Tanzania’s banking subsector grew significantly and showed resilience in 2024. A review of critical financial indicators showed upward trends in profitability, asset quality, and operational efficiency. The subsector’s credit portfolio also increased significantly, with loans and advances as a percentage of total assets rising from 57% to 59%, suggesting increased business lending activity.
Compared to 2023, profitability significantly improved in 2024, with return on average assets rising from 2.1% to 3.0% and return on average equity increasing from 13.4% to 20.1%. These metrics indicate better asset utilisation and higher returns for owners. The interest margin on average-earning assets remained stable at around 8%.
Positive signs for the subsector include a politically stable climate and a predicted economic growth of approximately 6% in the foreseeable future, as banks are challenged to thoroughly assess how their service delivery model incorporates environmental, social, and governance, technology, innovation, and higher capitalisation to manage risks and take advantage of emerging opportunities.
Within this context during the year, the slow rate of company formalisation, difficulties with registering chattels, ongoing structural concerns with land registry prices, dependability and efficiency, difficulties with enforcing defaults, and problems with personal identification and knowing your client (KYC) all pose challenges to growth. Continued working with the government and the Bank of Tanzania (BOT) is essential for overcoming these obstacles.
Likewise, banks that embrace FinTech and digital innovations, such as artificial intelligence (AI), robotic process automation (RPA), and advanced analytics, and integrate digital channels and platforms into their service delivery model are more likely to achieve optimal results. According to the FinScope 2023 report, roughly 6.4 million people, or 20% of Tanzania’s adult population, are financially excluded, leaving a big question: Where are the takers?
Discussing takers is essential, as a detailed examination of two major banks out of the top ten banks based on capitalisation significantly influencing Tanzania’s economy reveals strong growth across all key financial metrics. This includes notable increases in income, profit, assets, and deposits, along with an improving return on equity and a low non-performing loan ratio.
The banks disclosed a significant 21% increase in profits year over year for September 2024. Profit before tax reached TSh 687 billion during the reviewed period, compared to TSh 569 billion in the corresponding period of the previous year.
From TSh 861 billion the year before to TSh 1 trillion this year, interest income was a massive jump for most banks. The increase of 19% from TSh 7 trillion in September 2023 to TSh 8.4 trillion in the loan portfolio was the main driver of the 17% gain in interest income. In September 2024, the bank’s lending profitability was further solidified by its net interest income margin of 77%.
For instance, in September 2024, NMB’s assets increased by 16% over the previous year, going from 11.5 trillion to 13.3 trillion. Higher lending and investment in government securities are the primary drivers of this trend. The bank’s non-performing loans are at 3%, which was within the minimum requirement set by the regulator, which is 5%. This demonstrates that the bank has a good asset composition and is suitable for lending to enterprises.
This indicates that customers from diverse backgrounds have made deposits totalling TSh 9 billion, reflecting a 12% increase. In response to the rising demand for loans, the bank has raised its borrowings by 40%, maintaining a total of one trillion Tanzanian shillings from the previous year to the current year.
Another important bank that plays a significant role in the economy of Tanzania – CRDB – has also demonstrated that it is profitable, resilient, and has increased efficiency. The bank maintained its lead as the largest bank in Tanzania, holding the highest client deposits totalling TSh 10 trillion. Compared to others, the bank holds the largest balance sheet in the industry, totalling TSh 16 trillion, making it the leader in the market. The assets of the bank climbed by 26% during the year, which was driven by a growth in the amount of loans issued, investments in government securities, and balances with other financial institutions.
At the end of Quarter 3 2024, the profit before taxes of CRDB increased by 42%, going from TSh 411 billion to TSh 583 billion. The reduction of operational expenses and the raising of both interest and non-interest income are the factors that contribute to the expansion of profits. After reaching 861 billion in the previous year, interest income increased to 1.1 trillion TSh during the period under consideration, representing a 30% increase. The bank recorded a net interest margin of 72%, which indicates the bank’s efficiency in terms of profitability.
The bank’s strategic emphasis on digital banking has produced favour-able outcomes, evidenced by a 26% increase in non-interest income, totalling TSh 396 billion. Digital banking has resulted in fees and commissions accounting for 80% of non-interest income. CRDB has secured the highest customer deposits, totalling TSh 10 trillion, reflecting an 18% increase from TSh 8.5 trillion reported in the prior year.
The bank’s borrowings rose by 56% in September 2024 to accommodate the growing loan demand. During the reviewed quarter, loans and advances grew by 24%, reaching 10 trillion, up from 8.1 trillion in the previous year. The cost-to-income ratio is 46%, compliant with the regulator’s requirement of 55%. Nonperforming loans (NPL) declined to 2.6% in September 2024, down from 3.2% in the preceding quarter.
The performance of banking sub-sectors and listed equities, crucial for driving economic activities in Tanzania, has been robust in 2024, demonstrating profitability, asset quality, and efficiency improvements. Despite significant challenges in interest margins, the overall health of the sub-sector remained strong, indicating substantial potential for sustained growth that could significantly influence the economy in 2025 and beyond.