TANZANIA: THE banking sector has grown fast in the last three years, thanks to a strong economic environment accompanied by falling inflation.
The sector last year grew by 16 per cent, overtaking the remaining sectors by far. The second most growing sector was mining and quarrying which grew by 10.2 per cent.
And most banks posted historic profits. Vice-President, Dr Philip Mpango, said the sector performed well in post Covid-19 and managed to withstand headwinds.
“My tribute goes to the good work done by the leadership of all financial sector institutions for making this sector strong and resilient by increasing creativity and the ability to adapt to the current environment. “This is a big step that we should all be proud of,” The VP said when opening the 21st Conference of Financial Institutions (COFI) in Arusha early this month.
Also, the country’s financial inclusion rate increased to 76 per cent last year from 65 per cent in 2017. Minister of Planning and Investment, Prof Kitilia Mkumbo said the financial sector grew faster than any other sector last year.
“The National Development Plan’s goal is to continue stimulating the growth rate of the economy that is inclusive,” said Prof Mkumbo.
Other sectors were electricity (10 per cent), arts and entertainment (10 per cent), accommodation and food (8.9 per cent) and information and communication (7.9 per cent). The bank’s stellar performance was the result of the government initiative to create a conducive business environment, especially after the Covid-19 pandemic that shook the world between 2019 and 2021.
Bank of Tanzania (BoT) Governor Emmanuel Tutuba said the banking sector’s success pushed up significantly its contribution to GDP following the right implementation of the financial policy that simplifies various processes.
“Despite the effects of various global economic shocks, Tanzania’s financial sector has remained resilient and has continued to be one of the fastest growing sectors, especially in the post Covid-19 pandemic,” Mr Tutuba said.
Equally, the sector has seen an increase in new financial services and changes in service delivery systems, aided by innovation and technological change. “Until now,” the Governor said, “various transactions such as money transfer, payment of invoices and taxes, as well as other services are transacted in a snap of a finger thanks to digital systems”.
Previously, the transactions were done outside digital systems and thus took time and were costly.
For instance, the Tanzania Instant Payment System (TIPS) has reduced cheque transactions by between 10 and 26 per cent. The shilling-denominated cheque transactions at national clearing house dropped by 10 per cent while for US dollar cheques by 25.4 per cent, according to a report of Bank of Tanzania’s (BoT) Monetary Policy Statement (MPS) MidYear Review of 2023/2024. Nevertheless, in 2022, the financial sector grew by 9.2 per cent and contributed 6.6 per cent to GDP.
This growth was better compared to 3.1 per cent growth and 2.2 per cent contribution in 2020. BMI Country Risk and Industry Research analysis for the country’s banking sector showed that strong profits are expected this year as it was in last year’s second half.
“We expect that the banking sector will report strong profitability in the second half of 2023, and 2024, and loan quality will continue to improve,” the BMI analysis report said. Further, the analysis indicated that the sector registered over 1.5tri/- pre-tax profit last year compared to some 1.1tri/- in the previous year.
The strong economic environment, with falling inflation and robust economic growth, will allow locals to save more this year and last year’s second half than they did in the first half of last year.
“Whilst loan growth will soften slightly this year, as a result of unfavourable base effects from strong loan growth in 2022, lending will remain strong. “This will be supported by historically and regionally low-interest rates, stronger economic activity and an improved business outlook, improving loan quality,” BMI said.
Additionally, the banking sector also has robust levels of capital adequacy, with capital above regulatory requirements. The total capital adequacy ratio was 19.6 per cent last April, compared to the regulatory requirement of 10.0 per cent.
“Ongoing efforts to improve banking sector supervision are likely to ensure that banks’ average capital ratios remain strong over the coming years,” BMI said.
Tanzania Bankers Association (TBA) Chairman Theobald Sabi said despite the sector facing various challenges which mostly are imported due to the geopolitics that disrupt global logistics managed to navigate through them. “In calm water, every ship has a good captain” but not during the storm, Mr Sabi said.
The TBA Chairman, who is also NBC Bank’s Managing Director, said the country’s financial sector managed to sail during the bad weather, thanks to strong monetary policy put in place during the headwinds.
The banking sector’s financial inclusion increased by 22 per cent last year compared to 17 per cent in 2017. However, stakeholders said the penetration was still low, calling for more efforts to increase the level.
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