Tanzania Banking sector: 2021 and beyond

Where are we now? Liberalisation of the banking sector in Tanzania was one of a number of major economic reforms which took place in the early 1990’s. Currently the sector comprises 51 banking institutions including 36 commercial banks with the remainder including development banks, community banks and microfinance institutions. Even with this significant number of financial institutions, there is still scope for growth since the financial services sector (inclusive of the insurance subsector) contributes less than 5% of the country’s Gross Domestic Product (GDP).

In total, the banking sector’s assets at the end of September 2020 was TShs 37 trillion (equivalent of US$ 16 billion) with the top two banks accounting for 40% of these assets.

For the nine month period ended 30 September 2020, the profit before tax for the sector was TShs 543 billion (equivalent of US$ 236 million) with 65% of this accounted for by the top two banks. This represents a significant increase in the sector’s profits compared with similar period in the prior year, however the increase is primarily driven by the two top banks whose profits increased by TShs 118 billion, representing a 48% year on year growth. By contrast, the majority of the other banks either remained at the same level of profit or reported a slight decrease.

This performance also reflects a relatively less adverse impact of the COVID-19 pandemic as compared to other banks in the region. Whilst there is no doubt that Tanzania’s economy (especially the hospitality sector) has been affected by the global pandemic, some aspects of the diversity within the economy, including transit trade as well as mining, have proved to be stabilising factors. The absence of a country lockdown and early opening of the skies also contributed to relative stability.

Gazing into the future Although the Government projected a GDP growth of 5.9% in 2020, more recently the IMF’s “World Economic Outlook'' report issued in October 2020 had forecast (with “cautious optimism”) growth of 1.9%, actually one of the higher projections for African countries (a number of whom had negative growth forecasts). The same report predicted a 4.4% contraction in global GDP with less than 10 countries in the world forecasted to register GDP growth in the same period. It is also predicted that the global economy will pick up in 2021 and grow at 5.2%; most countries are expected to register growth similar to 2019 financial year levels which would be good news for the local banking sector. But then, what are the trends poised to shape and influence the local banking sector?

Top of the list is the government commitment to improve the business environment and attract foreign investors. In his Parliament inaugural speech in early November 2020, the President of the United Republic of Tanzania, Dr John Magufuli, reiterated the priorities of his government in the second term which included continued efforts to improve the business environment. He has moved the Investment ministry to his office for closer supervision and during the speech, he expressed his wish to see investors spend less than 14 days sorting out necessary permits and other paperwork. There is ongoing dialogue between business groups and different authorities, and it is hoped that these initiatives will help root out the bottlenecks to doing business in the country and catalyse the growth of credit to the private sector.

It is expected that the market will continue to witness more consolidation of banks. On different occasions, Bank of Tanzania (BoT) representatives have articulated the Bank’s wish for more mergers of banks so as to create bigger, stronger and better capitalised banks. Although there are no indications that BoT will imminently move to raise the minimum capital required for banks, it is envisaged that the zero-tolerance stance on inadequately capitalised banks will continue, which in itself will tend to result in some bank mergers. The pace may be gradual, but the direction is clear – and indeed it is a much-needed move given the recent history of capital and liquidity challenges for a handful of banks.