The big three in Tanzania are CRDB, NMB and NBC that command between 35
and 44 per cent of banking business in the country. However, FBME tops
them in terms of assets but many analyses exclude it because a
significant of its business is located outside Tanzania. PHOTOs |
Venance Nestory
By The Citizen Reporter
In Summary
- A Mzumbe University economics lecturer, Dr Honest Ngowi, says if the central bank leveraged modern Information and Communication technology, it could effectively do what it is mandated to do
Dar es Salaam. Tanzania has 53
banks. These are too many in a country where many households live on
less than $2 (about Sh3,200) a day and the majority people are
financially illiterate.
To many bankers, it even makes extremely little
economic sense when these banks are operating in an economy plagued by
high levels of unemployment and policy uncertainties.
Many banks operating in the country are not only small but poorly capitalised to effectively compete for survival.
Analysts say they should be merged to save them
from collapsing which would lead to a financial crisis like it happened
in Nigeria 10 years ago when it had 89 banks. The central bank there had
to timely intervene by consolidating them, which reduced the number to
40.
The second round of mergers in Nigeria that led to
the current 22 banks was necessitated by the global financial crisis
late last decade. The move also boosted the financial inclusion in the
country that has now reached about 60 per cent.
“There are more than enough banks to serve the
Tanzanian market,” Tanzania Postal Bank (TPB) managing director Sabasaba
Moshingi told The Citizen on Saturday when highlighting the performance
of the bank last year.
He said the country had a small formal sector
relative to the population and a substantial informal sector. That, he
explained, made most banks operating here to have similar target markets
that overlap in the formal sector.
“The high levels of competition we see are driven
by many players operating in the same space. If banks were to diversify
and tap into the unbanked who are over 80 per cent of the population,
which presents a huge opportunity, the level of competition would drop,”
he noted.
Most worrying for financial gurus about the banks
glut is the prospect of more players being licensed by the central bank.
To them, it is high time the Bank of Tanzania (BoT) determined the
appropriate banking size for the country.
According to them, BoT’s liberal policy of
licensing banks is not only a regulatory risk and an economic liability
but also a blind financial inclusion strategy. Its critics doubt the
central bank’s technological ability and human capacity to adequately
and effectively supervise such a big number of banks.
They are also not comfortable with the industry
being in the grip of a few banks. The top 10 banks held 80 per cent of
total banking assets in 2012 and not much has changed since then.
The critics say the increasing number of cyber
thefts in banks is a sign of poor banking supervision. Cases of frauds
in the sector are also alarming with some banks even accused of
facilitating money laundering and capital flight.
“Logically, the BoT will become increasingly stretched if the
number of banks it has to monitor keeps on increasing. There are signs
that it is being stretched already,” noted a financial expert, who asked
for anonymity.
He said BoT had problems in timely producing
banking supervision reports. Its latest, which covers 2012, was released
late last year and he sees the one for 2013 not being ready any time
soon.
He also wondered why BoT provided relatively
little banking sector information to the public unlike its counterparts
in Kenya and Uganda.
A Mzumbe University economics lecturer, Dr Honest
Ngowi, said if the central bank leveraged modern ICT it could
effectively do what it is mandated to do. According to him, the more the
financial institutions, the more it becomes challenging to supervise
them.
The World Bank chief economist in the country, Mr
Jacques Morisset, is one of the experts who say BoT can effectively
regulate the 53 banks. However, he is also of the view that the
Tanzanian market is small for so many banks to operate efficiently.
According to him, small banks have more
difficulties to reduce costs (economies of scale) and diversify risks.
He said banking is a risky business and one way to mitigate risk is to
lend to many and diverse customers so that the bank minimises the risk
that one of its clients will default.
“These many banks have to compete for the same few
customers both in the narrow corporate and retail customer base. The
challenge is in offering competitive services that can attract and
retain demanding customers,” Dr Ngowi of Mzumbe University Business
School said.
To another BoT licensing policy supporter, Mr John
Mashaka, the issue is not about too many banks but too many regulations
since they are not good for a healthy and vibrant banking system.
Arguing that for the country’s economic security, it is advisable and
much safer not to have a few large banks, he wants the government to
tame the current predatory lending that has made borrowing expensive
through exorbitant interest rates.
“Too many regulations will definitely kill some
banks… it will keep too much money in the vaults and not enough in the
economy. An increase of smaller banks is good for small businesses.
However, things could be different especially if these banks are not
properly regulated,” he told The Citizen on Saturday.
“The many the banks there are the more competitive
and better they become in terms of servicing the public. Increased
competition compels them to eliminate unnecessary charges at the same
time better their services. This is the only way for them to remain
operational.”
And that is the view of the central bank. According
to Deputy Governor Lila Mkila, experience shows that the existence of a
few big banks tends to create inefficiencies in service delivery that
arises out of monopolist tendencies, as it was the case during the times
when all Tanzanian banks were state-owned.
He said big banks normally target the
higher end of the market such that households, small and
micro-enterprises would normally be disadvantaged as they would
not fit in the nature of target clientele of such big banks. Having
such a variety of banking institutions including small banks, he argues,
promotes competition and efficiency in service delivery.
“It is worthwhile to note that currently there
are various types of banking institutions licensed by BoT that operate
in the country which include commercial, development, community and
microfinance banks with different missions and target markets.”
In their 2013 Tanzania Banking Survey, which
covered the previous year, consultants Serengeti Advisers grouped banks
in the country into three tiers with large 11 institutions being those
with assets in the excess of Sh400 billion. The mid-tiers were 16 and
their assets were between Sh100-400 billion whereas the assets of the
last category comprising 20 banks had assets of less than Sh100 billion.
According to expert Manzi Rwegasira, at the heart
of a sound banking system is good regulatory supervision to ensure that
the banking system is functioning properly and that depositors’ money is
safe.
He argues that the detailed on- and off-site
inspections and monitoring to ensure every bank has enough capital,
offers loans, has good managers, is making profits and has sufficient
cash are difficult.
“Tanzania could be better served with 20-25 large
and medium sized banks competing aggressively together rather than 53
banks of which more than 20 are small and cannot compete with the
largest 10 banks that dominate the market,” he opined.
To BoT, the sky is not even the limit in licensing
the banks and it says it has no difficulties in supervising the current
number. Mr Mkila told The Citizen on Saturday that banks would always
be licensed as long as their shareholders see economic and business
opportunities in the country.
“However, the new banks will have to meet the set
banking business criteria and other laws in the country and the various
regulations put in place by the central bank,” he added.
“Supervising banks is not difficult but has
challenges that are normal in the course of the Bank of Tanzania
executing its regulatory function. BoT is equipped with the necessary
tools that enable it to supervise banking institutions in an effective
way,” he said.
“The tools include the Risk Based Supervision
System which encompasses both off-site and on-site processes; a robust
reporting framework that enables it to get updated reports and returns
on both financial and non-financial information for each banking
institution on periodic basis (i.e. daily, weekly, monthly and
quarterly) supported by a robust Banking Supervision Information System
which enables BoT to take action in a timely manner.”
BoT critics say the government has no clear vision
and strategy for the type of financial sector that is needed to
transform Tanzania into a prosperous country. Bankers confided to this
paper that Tanzania has too many banks because of the relative low
barriers to operate in the country.
The glut of banks is mostly associated with the
lenient minimum bank capital requirements for licensing them. In 2012,
BoT increased the capital levels from Sh5 billion to Sh15 billion and
from Sh250 million to Sh2 billion for commercial banks and community
banks respectively.
The threshold is considered to be too low to act
as a strong barrier for new entrants. When the new requirements were
instituted, Tanzania had 31 fully-fledged commercial banks and 17
financial institutions.
A treasury expert who spoke on condition of anonymity opined
that a radical way to strengthen the banking sector was by reducing the
number of smaller marginal banks. To him, the best way to do that was by
increasing the capital for commercial banks to Sh25 billion and Sh10
billion for community banks.
By December 31, 2012, only 23 of the 32 commercial
banks had complied with the new minimum capital requirement. No
community bank had managed to do so. Treasury expert Mashaka says the
minimum capital cannot simply be raised or lowered anyhow.
“There must be thorough scientific research within
the economic sphere to determine the minimum amount required to
establish either a community or commercial bank. The most important
thing is legislation put in place to protect the consumers from rogue
and predatory banks,” noted a Tanzanian who works for the Bank of
America.
Most of the new banks in Tanzania are small which
the experts said tend to be a poor investment for shareholders. A
Serengeti Advisers report shows that smaller banks have been generating
negative returns for the past four years.
“Loss making banks are not only bad for investors;
they are also bad for customers and the wider economy because the money
they lose cannot be lent out. Loss-making banks effectively suck
capital out of the banking system and become a drain on the economy
because they are not able to fund investment or consumption.”
Despite its impressive growth rates in recent
years and the many banks licensed to operate in the country, the banks
are yet to play their due role in the national economic growth and
overall development.
BoT Governor Benno Ndulu says although the banks’
stability has improved a lot in recent years it does not contribute much
to the overall economy. According to him, it only accounted for only
2.36 per cent of national output (GDP) in 2012 up from 2.2 per cent in
2011.
That was partly due to the low level of financial
inclusion in the country, he notes in his message for the Directorate of
Banking Supervision Annual Report 2012. However, he says efforts have
been initiated to address some of the challenges which hold back access
to financial services.
“Tanzanian banks account for a significant share
of the total assets of the financial system, followed by pensions and
insurance. However, in terms of contribution to GDP, the banks only
account for 2.36 per cent from 2.20 per cent in 2011,” he said.
“This is partly due to the low level of access to
finance by most bankable population. Whereas a rapid growth is being
experienced in the financial system as a whole and in the banks in
particular, access to finance is still very low.”
Buoyed by economic growth of 6-7 per cent for over
a decade now, Tanzania’s banking assets have grown at a cumulative
average growth rate of 20 per cent per year since 2009. According to
independent sources, total banking sector assets grew from Sh12.1
trillion to about Sh21 trillion during the three-year period.
Financial services were the second fastest growing
activity of the national economy after communication last year at 12.2
per cent. Treasury forecasts show that financial intermediation will
grow by 12.3 per cent this year and surge to nearly 14 per cent in 2015.
Launching Tanzania’s financial inclusion
strategy late last year, Prof Ndulu said supply-side barriers were among
the major factors of sidelining many Tanzanians from the formal banking
landscape.
These range from high interest rates, services
that do not meet demand-side needs, exorbitant costs, to inefficiencies
of service delivery. He cited demand side barriers as information
asymmetry, irregular income patterns and lack financial literacy. The
strategy has a target of 50 per cent formal financial inclusion by 2016.
The critics say its attainment will not be determined by a large number
of banks but innovations like agency banking and the pivotal role
proved by the mobile telephony platform.
BoT figures show that in 2006 the proportion of
financial inclusion stood at nine per cent, 12 per cent in 2009 and in
2012 it was 17 per cent, which are about 3.4 million people. The rate
jumps to 22 per cent formal inclusion when savings and credit
co-operatives (Saccos) are factored in.
According to the Finscope Survey 2013 released in
April this year, Tanzania adults using financial services increased to
57.4 per cent in 2013 but mostly due to the increasing use of mobile
money services. However, the 9.8 million active mobile money users are
still unbanked.
Although Tanzania has more banks than Rwanda,
Uganda and Kenya, it has the lowest percentage of formal financial
inclusion amongst those countries. Kenya has achieved 50 per cent
financial inclusion largely due to two mobile banking and agency
banking. Kenya’s example shows that financial inclusion can be achieved
through new technologies and new ways to distribute banking services
rather than just the number of banks in the country. In 2009, Kenya had
45 licensed banking institutions; today it has 43.
During the period, financial inclusion in Kenya
rose from 40 per cent to 50 per cent. In contrast, Tanzania had 40
banking institutions in 2009 and today there are 53 banks yet it has
relatively little to show in terms of financial inclusion.
“Efforts have been initiated to address some of
the challenges which hold back access to financial services,” Prof Ndulu
says in the banking supervision report.
“In September, 2012 a credit reference system was
officially launched and two private credit reference bureaus have
subsequently been licensed. When fully implemented, the credit reference
system (consisting of a databank and private credit reference bureaus),
will see a major improvement in the provision of credit and its quality
as well as reduction in the cost of finance as lenders will be able to
better analyse credit worthiness of their clients; and borrowers will be
more appreciative of the implications of not honouring their
obligations. This will inculcate better credit culture amongst the
banking community.”
He added that technology and innovations are other
frontiers being used in the financial inclusion endeavour. These have
enabled development of alternative delivery channels for financial
services, making it possible to reach out to the unbanked population in
the rural and urban areas at relatively low cost.
Mobile financial services, which use mobile phones
to deliver financial products and services, have rapidly grown in the
recent past, he said. This has created an opportunity for more people to
access financial services at affordable cost.
rowth in mobile banking has been tremendous and no
bank wants to be left behind in exploiting the opportunities provided
by this new window that initially many bankers had thought would be a
threat to banking business. In its latest country report, the IMF says
growth in mobile banking transactions rose from Sh25.2 billion in 2008
to Sh28.9 trillion last year.
Prof Ndulu is optimistic that with the growth in
the financial sector and new developments in the mobile financial
services and agent banking, the goal of reaching 50 per cent of
financial inclusion is attainable.
“In cognizance of the need to increase access to financial
services, the Bank of Tanzania developed a framework for agent banking,
culminating in the issuance of a Guideline on Agent Banking in early
2013. Through agent banking, banks will be able to deliver their
services to more customers at affordable costs, thus increasing access
to finance by reaching the unbanked population of the country in rural
and urban areas.”
Mr Rwegasira is equally optimistic about the
future but worried by some of BoT strategies for increasing access to a
broad range of financial services such as payments, savings, and credit.
He says that since 2000, the number of banks have more than doubled;
yet the financial inclusion has changed modestly therefore we shouldn’t
expect that simply introducing more banks will quickly solve the
problem. “There has been some improvement in banking services and
general access to financial services over the last 10-15 years. However,
the improvement, particularly in financial inclusion, has not been
nearly good enough. Access to financial services in rural areas has not
increased minimally.”
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